A class called "Finance for Young Adults", is often not part of high school curriculum. Many young adults are left confused about how to manage money, get credit and stay out of debt. States are working to address this problem. As of 2020, 21 states require high school students to take a course on personal finance and 25 require them to take an economics course.
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This should at least help a portion of the next generation. For those who have not finished high school yet, here are eight important facts about money. These financial tips will help you live a financial life that is rewarding and enjoyable.
KEY TAKEAWAYS
It is possible to build a strong financial future by taking the time to understand some of the most important financial rules.
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You could save money by learning how to prepare your annual tax returns yourself.
You can start an emergency fund, and you should make sure that you are putting money into it each month, even if it's a small amount.
A financial plan should include saving for retirement. Saving early gives you the best chance to build your nest egg.
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1. Learn self-control
This skill may have been taught to you by your parents if you're fortunate. You can learn this skill if you are lucky. It will make it easier to manage your finances and keep your money in order. You can buy anything on credit right away, but it is better to wait until you have saved enough money to purchase the item. Are you willing to pay interest for a pair of jeans, or a box cereal box? A debit card works just as well and withdraws money immediately from your checking account. This prevents you from accruing interest.
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If you have a bad habit of buying everything on credit cards, even though you are unable to pay the full amount at the end of each month, you could still be paying for these items in 10 years. Credit cards can be convenient and you can build your credit score by paying off your bills on time. Some offer attractive rewards. Except in exceptional circumstances, however, you should always pay your bill in full. Don't have more than you can track. This financial tip is essential for building a strong credit history.
2. Control Your Financial Future
You can't manage your money if you don’t learn how to. Other people will try to do it for you. Some of these people might be malicious, such as unscrupulous financial planners who are paid commission-based. While others may be good-intentioned, they may not know how to do it. Grandma Betty wants you to have your own home even though you cannot afford one.
Don't rely on others for financial advice. Take control and learn a few books about personal finance. You'll be able to rely on your knowledge and not let anyone get you off guard.
3. Know where your money goes
After you have read a few books on personal finance, you will realize how important it can be to ensure that your expenses don't exceed your income. Budgeting is the best way to do so. You'll see the impact that small changes to your daily expenses can have on your financial situation.
Additionally, it can help you save significant money in the long-term by keeping your monthly expenses as low and manageable as possible. You may not be able to afford an apartment with all the amenities you want, but choosing something simpler could allow you to buy a condo or house sooner than otherwise.
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4. Start an Emergency Fund
Personal finance is a popular topic. It's important to remember to pay yourself first. No matter how large your student loans or credit card debt are, it's important to have some money aside each month to put in an emergency fund.
You can save money for emergency situations and have more sleep at night. If you start saving money every month and treat it as an expense that is not negotiable, you will soon have money to save for retirement, vacation, or even a down payment.
Although it is easy to place your money in a savings account, this will earn you almost no interest. Your fund should be placed in a high-yield savings, money market or short-term certificate-of-deposit (CD) account. Inflation will devalue your savings. Make sure that your savings plan allows you to access your money quickly in an emergency.
5. Save for retirement now
Your parents likely sent you to kindergarten with high hopes for you to succeed in a world far away. You should plan for your retirement years in advance. The compound interest principle means that the earlier you start saving, you will need less capital to save enough to be able to retire with enough.
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Why not start saving now for your retirement? Here's an Investopedia illustration: You invest $100 per month in the market, averaging a positive yield of 1% per month or 12% per year, compounded monthly for 40 years. Your friend is 30 years older than you and starts investing $1,000 per month for 10 years. This averages 1% per month or 12% per year. The compounded monthly returns are also 1%/12%. Your friend will have saved around $230,000 over ten years. Your retirement account will amount to a little over $1.17million.
The best thing about company-sponsored retirement plans is that you can put in pretax dollars, and the companies often match a portion of your contribution. This is almost like having free money. Although 401(k), IRAs have higher contribution limits than individual retirement accounts (IRAs), any employer-sponsored plan you are offered is a step closer towards financial wellness.
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Don't worry if you don't have a company plan. Self-employed workers have many options when it comes to setting up retirement plans. Others may open their own IRAs. This allows a fixed amount each month from their savings account to be withdrawn and then deposited directly into their IRA. Even though it is a small amount, it can add up to something useful.
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