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Around the nation, young people are graduating from high school and college and preparing to take charge of their financial lives.
If you listen closely, you can hear wallets groaning from coast to coast.
This is not another rant against millennials and other whippersnappers. Americans of all ages are hopelessly behind the curve when it comes to handling their money responsibly. Unless they have astute parents — or a natural interest in personal finance — young people are at a high risk of making financial mistakes that lead to chronic debt.
Localpizzadeliverywalledlakemi.info is all about providing the financial education lacking in too many schools and families. So, pass on the following 8 lessons to a young person in your life — or read these tips yourself if you’re fortunate enough to be a young adult just starting out on your own.
1. Debt is a form of slavery
In the first quarter of 2018, household debt reached a record $13.21 trillion, according to the . Household debt is now 18 percent higher than it was in the second quarter of 2013.
Imagine how all that debt might impact the life of the average debtor. What will happen if there is a job loss or an illness that health insurance does not cover? How much stress would you feel in that situation?
Debt, especially unsecured consumer debt, is a form of slavery. The debtor is beholden to the creditor because each day that the debt remains unpaid, interest charges pile up. Over time, it’s easy to see how the unchecked use of credit can erode wealth and foreclose opportunities.
If you already have fallen into debt, it’s not too late to climb out. Check out “Resolutions 2018: Crush Your Debt in 3 Simple Steps.”
2. Financially successful people live below their means
Financial success is usually the result of years of self-control, and a big part of that discipline involves living within or below your means. If every dollar that comes into your life has to go out, there’s little hope for getting ahead.
Work to keep your overhead lower than your income, pocket the difference and don’t let every bump in income mean a boost in lifestyle.
3. Pay yourself first
Learning to pay yourself first is an important part of financial security. Direct a healthy portion of your income into an IRA, a 401(k) plan or a savings account before your paycheck even hits your account. Otherwise, you’ll have to constantly fight the temptation to spend every dollar.
When you automate your savings and make that an unwavering part of your routine, it puts the twin forces of time and compounding interest on your side.
4. Forget about impressing the Joneses
It’s easy to access some of the trappings of wealth in our society, but it’s difficult to actually afford them. Buying new cars, big houses and designer handbags might impress others, but these goods often mask high debt and a precarious relationship with credit.
Don’t confuse easy access to credit with real wealth. Although it doesn’t seem nearly as sexy, real wealth is usually the product of responsible spending, maximizing the value of every dollar, and trading glamour for modesty and security.
5. Save aggressively early, and you won’t have to save so much overall
Saving is a long-term proposition. No matter how modest the amount, starting the savings habit early pays off. A broader time horizon means more years to:
- Benefit from compounding interest.
- Experience upswings in the market.
- Recover from downturns in the market.
- Refine your investment style.
6. Craft clear financial goals
Financial goals can be too broad — buy a house, save for retirement and keep paying our bills. To succeed financially, goals need a big dose of specificity.
For example, it’s fine to shoot for buying a home. But what kind of house suits your needs and lifestyle? What size of down payment would leave you with a comfortable mortgage?
The answers to these questions translate into better-defined goals that, in turn, can motivate us and help us to make better financial decisions.
7. Don’t believe everything you hear about money
Looking to popular culture for cues on how to manage your money is a bad idea. Avoid get-rich-quick schemes, and tune out people who tell you that purchasing the nicest clothes, the flashiest cars and hottest stocks will make you rich and happy.
Instead, read websites like this one, and learn from the mistakes and experience of others. To rise above the financial clutter, become a student of personal finance and critically assess the information that’s at your fingertips.
8. Set your own spending limits — and stick to them
In life, there is no shortage of companies trying to get you to spend — from credit card lenders increasing your credit limit to banks steering you toward the largest mortgage for which you qualify.
Don’t let these companies set your personal spending ceiling. Instead, decide for yourself what you can afford, what you’re comfortable with, and what your priorities are. You’ll likely find that your personal limit is much lower than others say it is. Remember, you are in charge of making money, and you decide how it gets used.
What financial advice do you have for new graduates and other young people? Share your thoughts below or comment on .