Personal Finance Tips for Young Adults
A lot of people make resolutions to improve their finances at the beginning of each year. And that’s a good thing, because the sooner you start and get serious about financial planning, the better. However, resolutions that aren’t backed up by knowledge and action become little more than unfulfilled goals. Successful Financial planning happens with a certain level of financial literacy. So, if you want to make smart decisions about your money, build your savings and ultimately achieve financial security and freedom this year, you have to be financially literate.
While there’s no school course (yet) that teaches the basics of getting your money right personally, you can learn a lot from online articles, blog posts, videos, and read personal finance for dummies books to up your Financial savviness.
That’s why we’re glad you’re reading this article. In this post, we’re going to discuss what personal finance means, as well as basic personal finance terms to know and use to give you a headstart on your Financial management journey. Plus we’ve included a downloadable template to help record your monthly income and guide your budgeting.
What is Personal Finance?
Personal Finance according to someone is the “financial management which an individual or family unit performs to budget, save and spend monetary resources over time taking into account various financial risks and future life events.”
We think it’s a terrific definition.
It talks about the fact that personal finance is financial management i.e a system of practices that helps an individual or family unit adequately manage and maximize their income by budgeting, wise spending, and saving.
Personal Finance covers managing money, saving, and investing as well as banking, insurance, mortgages, investments, tax, and retirements. Great personal finance can help you meet your personal financial goals – whether it’s saving up for a house or car, planning for retirement, or just wanting to meet short-term financial needs.
Personal Finance Terms to Know (and Use!)
A budget is a spending plan based on income and expenses over a period of time. It covers a projection of what your income will be and what you’ll spend it on. A budget can contain a comprehensive list of expenditures or a few summarized categories.
If you associate making a personal budget with being overly frugal or depriving yourself then it’s time to have a mindset shift. At its core, budgeting is a financial plan – that allows you to take control of your money even before it enters your hands. And a good budget includes space for wants and fun stuff so you don’t have to deprive yourself unnecessarily.
A budget should be as personalized and flexible as possible. For example, if you become a car owner, then you’re probably going to have a budget different from when you used public transportation. If you get a pay raise, then your expenses or (hopefully!) your savings and investments might increase. A budget also makes room for unexpected events because surprises (and spending mistakes) do happen.
Budgeting your money has a myriad of amazing benefits even if you’re not struggling financially. It can help you understand your relationship with money (i.e what you spend your money on and why), track your expenses and the little foxes in your purse (expenses that seem like little but cumulate into a big amount in the long run), build up your savings as well as keep you stress-free when it comes to money.
The key to sticking to a budget successfully is to plan realistically. Consider your spending habits and monthly income and set a budget you know you can keep. Give yourself a realistic shot at staying within your budget. Don’t set a strict budget of never eating out when you currently order meals at least four times a week. Look at your budget as a way of encouraging healthy money habits you want to develop (such as cooking at home or cutting down on the amount you spend on clothes) and adapt it to how better your money habits are becoming.
Insurance in formal terms is an arrangement by which a company undertakes to provide a guarantee of compensation in case of a specified loss, damage, illness, or death in return for payment of a specified premium. Insurance is a form of financial risk management, used to hedge against the risk of a contingent or uncertain loss.
Insurance is generally designed to protect you in the event of a loss you can’t otherwise pay for, such as if your cat gets really damaged or you or a loved one requires expensive surgery.
There are different types of insurance you can take to hedge against loss. Life insurance, car insurance, health insurance, home insurance, etc.
Taking out insurance is a great way to boost your financial security because it serves as a means by which you can protect yourself and your loved ones from facing a Financial crisis. All in return for a premium (agreed amount of money) you pay to the insurance company periodically.
Pretty wise, wouldn’t you say?
Saving money is basically setting aside a portion of your income periodically, in safe accounts or securities that can be accessed instantly or in a very short time. So, to save money, you basically subtract your expenditure from your income and keep the leftover for future purposes.
American Author Napoleon Hill calls saving money regularly ‘the foundation of all financial success. Cultivating the habit of saving regularly is extremely crucial to achieving your financial targets or goals – whatever they are. Saving the right way can make a huge impact on your financial success. It can make the difference between you stressing out and suffering through recession or sleeping soundly through the night because you have enough spare cash on hand. Savings can help you cater to the unexpected such as an illness or accident, sudden job loss, or an emergency trip. Having money saved also enables you to take advantage of great, once-in-a-blue-moon situations – whooping discounts on capital projects or purchases, investing in a business, or buying shares of stocks when the market crashes.
Download Personal Budgeting Template
As promised, we included two downloadable personal budgeting templates just for you!
The first is a Monthly income sheet; a one-step, easy-peasy way to record your monthly income and monthly income allocation. If you have several side jobs or you run a side hustle alongside working a 9-5, then recording your income can become a little tacky – but not with our monthly income sheet. It helps you to know exactly how much income you get every month (from multiple sources, it even includes columns for income from gifts, profits from shares, and investments) and what percentage of your income will go to expenses, savings, and non-negotiables (such as tithe or investments).
Monthly Expenses Sheet:
Our fancy way of saying ‘budget’. It includes columns for all kinds of expenses giving you a broad view of what you spend your money on and how best to maximize your income.
We suggest you use the two sheets both at the beginning and at the end of each month.
Monthly Income Sheet:
The Monthly income sheet can be used at the beginning of each month to record your income in the previous month as well as project your desired income in the present month. You can come back to it at the end of each month to see if your income predictions were correct. You can also use it to strategize if you have the goal of earning more money.
The Monthly Expenses Sheet can be used to plan your expenses for the month at the beginning of each month and then you can come back to it at the end of each month to see how well you stuck with your budget and what changes should be made.
The two sheets can be easily edited when copied or downloaded as an Excel Spreadsheet.
So, what money tip are you looking at tackling first? Budgeting? Sticking to a budget? Saving more? Getting an insurance plan?
Let us know in the comments!
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