According to Curtis Krietzberg, CFA, MBA, a financial planner in Red Bank, NJ, and principal in Krietzberg Wealth Management, many young adults could be better equipped with the financial knowledge to handle their own finances. “We see it all the time,” Krietzberg says. “We hear from the young men and women we speak with that they were never taught how to read a bank statement, let alone how to save for a large future expense, like graduate school, a home purchase, or a wedding.”
There are six basic things everyone should know about money, according to Krietzberg, in order to be financially independent.
1. Spend within your means
Once you have a job and are earning an income, it is a good idea to put a budget on paper that can help you understand how to live within your means. “Include all of your typical monthly expenses, like rent, utilities, cell phone bills, car payments and insurance, and groceries,” explains Krietzberg. “Once the basics are accounted for, you’ll see what’s left. With the remaining income, you should start to set aside specific amounts for savings and finally, some that can be used for special purchases or vacations.” You might find it hard to stick to a budget, but a budget is important to make sure your financial future matches your goals, said Krietzberg.
2. Pay yourself first into a savings account
Once all your expenses are paid, the first thing you should do with the remaining amount is to pay yourself into a savings account. “Treat yourself, go out to dinner or buy something special, enjoy the income you are earning,” Krietzberg recommends. “But do not wait too long to start putting money away for a future that is sure to be filled with large expenses – graduate school, a home, a family. These things will only happen when you save for them.” Just like you pay your monthly rent or utility bill, pay something into your savings account every month. Krietzberg also suggests putting as much as your budget will allow into your company’s savings plan.
3. Avoid credit card debt
Many people often turn to credit cards to fund expenses that their regular income cannot cover. “It is just too easy to put large expenses onto a credit card, and then the credit card bill comes in and it’s not easy to pay it off,” says Krietzberg. “Before you know it, you’re not able to save anything because all the extra income is going to pay down the credit card or the interest charges.” And when credit card debt is carried over from month to month, rather than being paid in full, it affects your credit rating, which can have an impact on your future ability to afford a car loan if you need a new car, or to get a mortgage when you’re ready to buy a house. “It’s best to live within your means, and strategically save for large purchases rather than rack up the credit card bills.”
4. Have an emergency account for the unexpected
Life is filled with surprises, or depending on the surprise, one might call them emergencies. “It is a wise idea to set aside some funds for emergencies,” Krietzberg explains. “Anything can happen, like an expensive car repair, or a major appliance that needs to be replaced – expenses that can take a financial toll on your bottom line. “The best way to help reduce the financial drain is to save specifically for emergencies so the funds are there if you need them.” Krietzberg goes on to say that an Emergency Fund should be separate from your other savings accounts.
5. Get and use the right information to help you make good financial decisions
If you need help understanding how to manage your finances, the best place to start is with someone that knows how best to help. “Financial advisors are partners that work together with you to make sure you are making confident financial decisions,” says Krietzberg. Look for an experienced, licensed professional who can help educate you on budgeting, debt management, investment management, and other financial issues. “Your parents may work with someone they trust, and that person might be a good fit for you also,” says Krietzberg, who works with many of his clients’ young adult children. “Either way, you’ll want to work with someone who is a fiduciary, meaning they have your best interests as their primary goal,” said Krietzberg.
6. Have a financial plan and stick to it
The best way to ensure that all the above gets accomplished is to create a financial plan and follow it closely, says Krietzberg. “You should think about what you hope to accomplish in the next year, two years, five years and more. Based on that information, put a plan on paper and focus on budgeting, paying down debt, and both short-term and long-term savings,” says Krietzberg. “And since salaries and circumstances change, remember to revisit your plan often and make changes as needed.”
For young people who have just started their first job, the future starts now. “You cannot wait to start saving for your future,” cautions Krietzberg. “If the future starts now, your financial plan must start now as well. It is never too early to learn about and implement financial wellness strategies.”
Curtis S. Krietzberg is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Krietzberg Wealth Management is not an affiliate of Lincoln Financial Advisors Corp. CRN-5663865-050223.
Lincoln Financial Advisors Corp. and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.