Personal finance has many moving parts, and it can be overwhelming to younger adults trying to get a handle on everything.

The good news is you don’t have to figure everything out earlier in life — especially if you have fewer responsibilities.

Setting a strong foundation by learning the basics of personal financial management and starting on the big goals will go a long way and help the other things fall into place. This article explores six tips young adults can use to control their finances confidently.

1. Create and stick to a budget

Your budget lays the foundation for day-to-day and long-term financial success by showing you where each dollar goes. First, track and write down all income and expenses for a month. Group expenses into categories, such as groceries, gas, and dining out, to identify your spending patterns. Then, set realistic limits for each category.

Review your budget monthly and adjust if necessary. It’s fine if you go past your budget the first few months since budgets shouldn’t be restrictive, and expenses may change over time. The important thing is ensuring your spending remains relatively aligned with your income and values.

2. Save for an emergency fund

An emergency fund is a fund with savings for unexpected events like job loss, car accidents, or surprise medical bills. The fund helps you cover the emergency itself and any lost income or other accommodations you need while minimizing or avoiding debt. Aim to save three to six months of living expenses in an accessible savings account for emergencies. Carve out room in your budget, starting small if needed, to put toward this fund.

Consider a high-yield savings account, which pays more interest to help you keep up with inflation and earn more on unused emergency cash. It’s ideal to make this account’s sole purpose emergencies and avoid mixing with other savings goals to reduce the temptation to spend on non-emergencies.

3. Start on retirement savings early

The earlier you invest, the more you can potentially earn through compound interest — where the money you invest earns more money. So even if retirement is decades away, starting to save now could be one of the best financial moves in your life.

Start with your workplace account (such as a 401k). Contributions are pre-tax, and employers often match a portion of contributions, which is effectively free money. Once you at least max out your employer match, explore external accounts, such as Individual Retirement Accounts (IRAs). These have lower contribution limits but offer more control and a wider range of investment choices.

If you can’t contribute much early on in your career, don’t fret. Small investments could add up as your savings compound, and you can increase your contributions as your earnings increase. It also helps you establish a habit of prioritizing your long-term financial goals.

4. Work on building your credit

Strong credit helps you access more loan and credit card options and qualify for the most favorable rates and terms. It also makes home shopping easier and can even help qualify for better apartments. Using a credit card responsibly by paying the full balance monthly is a good start. Here are some other proven strategies for strengthening your score and history:

  • Pay all bills on time
  • Keep credit card balances low (ideally under 30% of credit limits)
  • Keep accounts open
  • Space out credit applications by at least six months

Furthermore, request a free copy of your official credit report from each of the credit bureaus (Equifax, Experian, and TransUnion) each year. This lets you monitor your progress. It also helps you catch and dispute potential score-harming errors. Consistent, responsible credit habits will pay off in the future, making it easier to make major purchases and save on borrowing.

5. Consolidate your debt

If you have multiple debts, you may struggle to keep track of repayment terms for all of them. Luckily, you can pay these debts off more easily by refinancing and consolidating them with a personal loan. This creates one fixed, manageable monthly payment at most likely a lower interest rate. As a result, you can pursue debt payoff more aggressively. Paying down these debts can create financial relief and free up money for your financial goals.

6. Understand insurance

At its core, insurance is a financial tool that helps you protect yourself against potential financial losses. You pay premiums to an insurer in exchange for coverage if a situation causes a relevant financial loss. Some of the most crucial insurance policies for young adults include:

  • Health insurance: Helps afford preventive care and procedures you need to stay healthy and recover from illness or injury.
  • Auto insurance: Legally required and protects you from costly car accidents.
  • Homeowners or renters insurance: Protects your home and possessions from losses due to disasters, theft, weather, and fire.
  • Dental and vision insurance: Covers routine dental and vision care as well as corrective or restorative procedures.
  • Life insurance: Protects your loved ones if you pass away by paying them a substantial death benefit to replace your income and save for future goals.

Numerous other forms of insurance, such as long-term care insurance, are less relevant to young adults. However, learning about them early can help you make decisions later in life.

The bottom line

Personal finances can seem daunting with so many moving parts. However, starting with some key areas at this stage of life helps you narrow your focus and take the first steps. Follow a budget, save for emergencies, invest early for retirement, build credit, consolidate debt, and learn the basics of insurance. These create a solid foundation for taking control of your situation.

Ultimately, however, personal finance is a learning journey. You’ll make mistakes along the way, and that’s fine. As long as you learn from your errors and improve a little at a time, you’ll grow in your confidence and ability to steer yourself toward a bright financial future.

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