Graduating from college or university, landing that first job and renting an apartment is an exciting chapter in any young adult’s life. Finally standing on your own two feet is a rite of passage, however in today’s economy, the cost of that rite of passage is increasing drastically.
Millennials and Generation Z are finding themselves struggling a lot more financially than their Generation X and Baby Boomer counterparts. According to Statistics Canada, the median debt for millennials reached $35,400 in 2016, compared to just $19,400 for young Canadians in 1999. As a result, today’s young adults need to be even more financially literate if they want to be able to manage their money effectively.
Yet the reality is, most young adults starting off on their own aren’t experts when it comes to personal money management. Financial literacy isn’t something that’s regularly taught in school, and as a result, young adults can encounter financial difficulties that become valuable lessons on how to better manage money.
Money management is neither as easy nor as difficult as you may have been led to believe. You don’t have to be a math genius to get it right, but it does take a lot of practice. Here are some tips on how to manage money as a young adult:
- Learn restraint: When it comes to money management, most young people lack restraint. Too often they give into temptations like indulging in a night out with friends, splurging on a vacation or going on a shopping spree. Money management is all about self-control. When you see something that you want to purchase, think very carefully before buying it – even if you can afford it. It takes time and patience, but you can learn restraint with continued practice.
- Keep track of your spending: For many young adults, if they have the money, they will spend it. But when the money runs out, they often wonder where that money went. This is the result of not keeping track of spending. You don’t need to learn accounting to keep track of your money. A simple record of your daily purchases on a spreadsheet or your cell phone will help you see clearly where your money is going. Once you have an idea of where you’re spending money, you can become more conscious of your purchases and whether or not they’re worth it.
- Create a budget: Take the time to make a monthly budget for yourself. Many young adults do not follow a budget, and as a result end up spending beyond their means and getting themselves into debt. After tracking your spending, you can start to assign money to each of your expenses, such as groceries, utilities, transportation, housing and entertainment. Spend no more than you have coming in so that you can avoid having to borrow money.
- Set money aside for emergencies: You can never predict the future, and that’s why you must always be prepared for emergencies. Create an emergency fund and put some money in it every month – even just $10. Make sure that you do not touch the money except in the event of a real emergency.
- Start saving for your retirement: If you don’t start saving for your retirement at a young age, you may not be able to save enough to last throughout your retirement. You should ideally start saving right from your first paycheck. If you start saving early, not only will you have more money come retirement, but you’ll also not have to put aside as much money thanks to compound interest. If you manage to save up enough, you may even be able to retire earlier than you thought. Check out the wonders of compound interest in this article.
Education is essential if you want to be great at managing your money. Browse the financial education resources on our website to learn more about budgeting, money management and debt management. If you’re in debt and need help managing your finances, contact our credit counsellors for a free consultation.