One of the most common questions received by accountants is, “When is the best time to start taking financial planning seriously?” The answer to this is always “the sooner the better,” and that’s even if you are still a teenager.
That’s right—even people just beginning to look past their high school years can benefit from smart saving and financial planning strategies. With that in mind, here are some important financial planning tips for young people from an accountant in Jamestown, ND:
- Begin saving as soon as you start earning: It might seem absurd to start thinking about saving for retirement when you’re on your first real job fresh out of school. After all, you likely have student loans and plenty of other debt taking up a big chunk of your income. But it is absolutely never too early to begin retirement planning. If your company offers a 401(k) plan, sign up as soon as you can. If no such plan exists, take a chunk of your paycheck every month and put it toward an IRA. It’s best to start preparing as soon as possible.
- Use credit wisely: While credit cards are excellent tools to help you build up your credit rating, use them wisely. Remember: credit cards have very high interest rates, so if you have a running balance, you’ll be paying far more than necessary. A great strategy is to use your credit card exactly as you would a debit card, and pay it off multiple times per month. That way you’re still building credit without actually spending money you don’t have.
- Start an emergency fund: In addition to planning for your retirement early, you should also stash a bit of money away into an emergency fund every month. You never know when you are going to have a medical emergency, some major car or property issues you’ll have to deal with or any other unexpected major costs. Having such a fund is a nice insurance policy to prepare you for a worst-case scenario.
- Live within your means: One area where young people tend to get themselves into trouble is by trying to live to the same standards they were used to with their parents. However, your parents likely spent many years saving and getting to their current financial status. You need to live within your means. That means if you’re making $30,000 a year and paying a ton in student loan debt, you probably shouldn’t be buying a luxury car or a yacht.
- Know your partner’s financial situation: It’s not a particularly romantic gesture to ask someone about the state of their credit and their spending habits. However, at some point in a relationship, it’s something that is absolutely worth discussing. If you are considering marriage, you need to know exactly what you’re getting yourself into from a financial perspective. You need to be able to trust that your partner will be responsible with money and credit.
These are just a few pieces of advice that are great for young people who are just beginning to experience their own financial independence. For more tips, reach out to Craig S. Hanson, CPA, your go-to accountant in Jamestown, ND.