Young adults often hear how important it is to save, invest, and manage their money wisely.
But mostly, public high schools and post-secondary institutions don’t prepare them for these types of financial decisions. That means unless their parents knew about investing and taught them early, young adults know about the importance of these things but don’t know how to get started.
Today, we’ll look at three suggestions for investing and three suggestions for money management.
Retirement plans are one of the easiest ways young adults can begin investing. Offered both by private companies and employers, local financial advisors and national advisors both suggest early retirement planning. This is because of longer life spans. Most people in their twenties will live into their mid-eighties, meaning they’ll need a retirement income for at least twenty of those years.
Buy a house or not? One of the most common investment tips, especially for young adults, is to buy a home. Property can be a good investment, but buying real estate isn’t always the best investment strategy for young adults.
US News suggests that, before buying an investment property, young adults ask themselves if they have a plan to go along with the purchase. Long-term investments should have a plan to net owners 13 to 15 percent returns annually, while short-term ones should have a nearly guaranteed plan for generating returns.
Invest in real estate investment trusts. Young adults interested in real estate investments who don’t want to purchase a property outright should consider real estate investment trusts. These are opportunities that pool the capital of multiple investors and use that capital to invest in real estate opportunities.
The individual investors then make dividends from these real estate investments without having to purchase real estate on their own.
Smart investing has fewer long-term benefits if it isn’t combined with smart money management. Perhaps the most important money management skill to learn is living within your means. Even the most effective investment strategies won’t do any good if a young adult is spending more than he or she is making.
Therefore, financial advisors suggest setting a monthly budget and learning to stick to it. This budget should include set amounts for savings, investments, monthly expenses, and discretionary spending.
Living within your means includes learning to live without credit cards. According to surveys by ValuePenguin, the average person under 35 has $5,808 in credit card debt. Many young adults fall into the trap of thinking credit cards are the best way to build credit.
Unfortunately, many realize too late that credit cards may build credit, but they also tempt people to overspend. For those already in credit card debt, the best advice is to make a debt-repayment plan and pay off the balance as soon as possible.
Plan for the unexpected. Few things will derail savings and investment plans like having to spend money set aside for these things on medical bills or car repairs. Savings accounts are one of the most common suggestions for planning for the unexpected. When possible, savings accounts should have three to six months of expenses. Emergency savings accounts should have a few thousand dollars.
Learning the financial habits necessary to invest successfully is one of the most important things those in their twenties can do. And, while these ideas can help, young adults are encouraged to continue learning about finances and trying other tips. What works for one person may not work for another.