The Best Financial Advice for Young Adults

Young adulthood can be a challenging phase when it comes to managing finances. The rising expenses and limited resources faced by today’s young adults make it crucial to adopt a strategic approach to financial planning. In this article, we will explore the top five pieces of advice from financial experts for young adults to navigate this economic landscape.

Save a few bucks

One of the first financial goals for young adults should be building an emergency fund. Even a small setback like an unexpected car repair can quickly snowball into a major budget issue, especially with the high interest rates on credit cards. Experts suggest aiming for a $1,000 emergency fund as a starting point, which can cover most common financial emergencies. In the long run, the goal should be to build an emergency fund that can cover two to three months’ worth of living expenses in case of a job loss.

Use buy-now-pay-later sparingly

While buy-now-pay-later services like Affirm and Afterpay have gained immense popularity, financial experts advise caution in using them for everyday purchases. These small amounts can quickly add up and strain your budget. Additionally, relying on installment payments can become a habit that is hard to break, and managing multiple accounts can be inconvenient. Furthermore, these services often do not report activity to credit bureaus, which means they don’t contribute to building a strong credit history.

Build credit responsibly

Many young adults have chosen to avoid credit cards entirely, perhaps in response to their parents’ struggles with credit card debt. However, credit avoidance can hinder the ability to build a positive credit history. Lenders typically look for a good track record of timely bill payments before offering favorable rates on credit cards, loans, and mortgages. Instead of completely avoiding credit cards, experts recommend using them responsibly to establish and improve creditworthiness.

Take the match

If your employer offers matching 401(k) contributions, it’s essential to take advantage of it. Failing to do so means leaving money on the table. Starting to invest while young provides the advantage of compounding over the course of a career. Experts recommend keeping it simple by investing in index funds, which have a proven track record of outperforming other investment strategies over time. Index funds are a foundational building block of a well-diversified portfolio.

Consider a Roth

Young adults can benefit greatly from Roth IRAs and Roth 401(k)s. These retirement accounts are funded with after-tax contributions, which means you pay taxes upfront. However, as your earnings rise over time, you will likely be in a higher tax bracket. The advantage of a Roth account is that your money grows tax-free, and qualified withdrawals in retirement are not taxed. This power of compounding returns growing tax-free provides a true benefit for early-career retirement savers.

In conclusion, young adults can navigate the challenges of today’s economy by following these expert financial advice. Building an emergency fund, using buy-now-pay-later services cautiously, building credit responsibly, taking advantage of employer matches, and considering Roth accounts are essential steps towards achieving financial stability. By adopting a comprehensive approach to managing finances, young adults can secure their financial future.

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