5 Smart Money Moves for Young Adults

Financial advice is only useful if it’s relevant to your own particular situation. The right move for someone twice your age may be totally wrong for you, while your best financial move may be completely inappropriate for someone else. In this article, we will be focusing on young adults and their particular financial needs and challenges.

Just starting out
In stark contrast to those who are close to retirement, young adults have a huge number of short-term and long-term financial needs with minimal resources to put into them. The biggest challenge that most people face as they start out in their careers is finding the best uses for your money. Especially if you’ve lived a frugal lifestyle throughout your school years, the temptation to splurge with your newfound salary can be almost irresistible. But with time on your side, anything you manage to save can have a much bigger impact on your future lifestyle than if you wait until later to address your long-term goals.

Finding the right balance is tough, but following these five ideas is a good place to start.

Idea 1: Get familiar with finances.
Millions of young adults come out of school with no knowledge of personal finance at all. If you’re one of them, don’t be embarrassed — but don’t accept your ignorance. Take steps to find out everything you need to know about money.

The Motley Fool Singapore’s 13 Steps to Financial Security are a good place to find out how to get started with the ins and outs of investing. For more basic advice on debt, savings, and CPF, the Fool has free resources to help you learn what you need to know. Either way, getting familiar with all the money issues that you’ll face throughout your life will pay huge dividends for decades to come.

Idea 2: Get control of Your Money 
Getting control of your money is about spending less than you earn, and using the difference to fund savings and investments.  Start getting control of your money by budgeting. Make a list of your regular bills and how much they cost you each month.  This should give you a good idea of your main areas of expenditure.  If you’re not sure where your money’s going, keep a spending diary. At the end of the month, add it all up to see how much you spend and where you spend it.

Idea 3: Start small and build on saving.
When you’re young, building a habit of saving is more important than the amount that you save. A good way to start is to save a tiny amount of your paycheck — as little as 1% — and put it into a savings account. Then, when you’re fortunate enough to get a raise, boost your savings by half your extra pay. That way, you’ll enjoy the fruits of your career success but also ramp up your long-term saving. It may seem insignificant, but later in life, you’ll be amazed how much those little savings add up to.

Idea 4: Learn about the power of compounding 
What is the power of compounding? It is about how earning a slightly higher rate of interest on your money can make a huge difference to the amount of money you end up with in the long run. Let’s take a $1,200 initial investment that you keep for 40 years. A 0.5% return (just like a savings account) gives you $1,465, while a 9% return (like the stock market) gives you a grand total of $37,691 at the end of the same time frame. The reason why there is such a huge difference between the two is because the interest that you earn on the interest is growing even more interest.

Idea 5: Recognize your most valuable asset.
When you’re young, the present value of your future earning power is the most valuable asset you own. Take advantage of training and development opportunities to increase your value both to your current employer as well as in potential future jobs down the road. The effort may not always pay off immediately, but you’ll be surprised how often it comes in helpful down the road.

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Next week, we’ll look at how you’re never too young to learn about money. We’ll be dishing out money advice for kids and teens.

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