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Most high schools don't offer a course called "Finance for Young Adults," which is a regrettable error that prevents many young people from knowing how to handle their finances, apply for credit, and avoid debt. Despite some progress—by 2022, graduating from high school will be required in 23 U.S. states to have taken a personal finance course, and in 25, it will also—there are still significant knowledge gaps in this age range.

At least a portion of the next generation should benefit from basic economic and financial education in high schools, but young adults must also acquire fundamental financial teachings during the key post-high school years. Let's look at a few of the most crucial guidelines for getting your finances on the best course possible. Never forget that the earlier you start saving and investing, the more time you have for them to develop.

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1. Exercise Self Control: Use Cash Instead of Credit


If you're lucky, your parents instilled in you the virtue of restraint when you were little. If not, remember that the sooner you develop the crucial life skill of holding off on satisfying your desires, the sooner you'll maintain your own finances as a matter of habit.

One of the most crucial methods for practicing financial restraint is also one of the easiest. You can use a debit card rather than a credit card for all regular purchases if you postpone making them until you have saved up enough cash. A credit card is basically a high-interest loan unless you can afford to pay the debt in full each month, which is not possible if you use a debit card, which immediately deducts the funds from your checking account (without additional fees). If you develop the risky behavior of making all of your purchases using a credit card, you risk not only paying interest on a pair of jeans or a box of cereal today but also maybe still having to pay for them in ten years.

Credit cards are undoubtedly helpful; some of them offer excellent benefits; and using them responsibly helps you increase your credit score. The key is to use them for your benefit rather than the lender's, who benefits from your bad habit of accruing interest-bearing balances. Only use credit cards in times of emergency, and make sure you settle the balance in full when the bill comes. Additionally, avoid accepting every credit offer you are presented with and avoid carrying more cards than you can manage.

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2. Avoid bad advice by educating yourself


People will discover ways to mismanage your money for you if you don't learn how to do it yourself. Some of them, such as dishonest financial planners, might have harmful intentions. Others may have the best of intentions but may not be entirely aware of your situation, such as relatives who offer general advice on the value of owning a home even if the only way you could currently afford to do so would be by taking out a dangerous adjustable-rate mortgage.


Take control of your financial future by reading a few fundamental books on personal finance rather than relying on unqualified strangers for assistance. Once you have the information you need, stay on course. Avoid being distracted by anyone, including a partner who drains your bank account or friends who pressure you to spend a lot of money every weekend.

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3. Budgeting 101: Understand where your money goes


You will comprehend the significance of two guidelines that every personal finance counselor keeps repeating once you have read a few personal finance books. Keep an eye on where your money is going at all times and avoid letting your spending exceed your revenue. Budgeting and making a personal spending plan to keep track of your income and expenses are the best ways to accomplish this.


Realizing how much it costs to get coffee from a barista each morning over the course of a month might be a helpful wake-up call once you actually start keeping track of how much money you spend. Small adjustments to your regular expenses, like brewing coffee at home, are entirely within your control and can affect your financial condition just as much as a pay boost can, which is mostly out of your boss's hands.

Over time, you can save even more money by trying to keep your bigger monthly expenses, such rent, as low as feasible. Even if you can currently afford a luxurious apartment, selecting a more basic residence and saving the money you save could enable you to purchase a home or condominium far sooner than your high-rent friends.

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4. Create an emergency fund first, then pay yourself.


Paying yourself first refers to setting up funds for future expenses and unexpected expenses. It is one of the most often used adages in personal finance. This straightforward routine not only keeps you out of debt but also improves your quality of sleep. There are methods to put at least some of your monthly income into an emergency fund, even on the tightest budget—regardless of how much you owe in student loans or credit card debt or how little money you make each month.


Additionally, if you develop the practice of routinely setting money aside for saves, you will stop thinking of saving as an option and instead start thinking of it as a necessary monthly investment. Soon enough, you'll have savings for retirement, vacations, or even a down payment on a home, in addition to emergency funds.

Your money will be safe and readily available if you deposit it in a typical savings account. That type of account, however, will generate virtually no interest, which means that inflation will gradually reduce the value of your funds. Instead, you might invest your money in a money market account, short-term CD, or high-yield savings account. Make sure your savings vehicle's guidelines allow you to access your money fast in case of an emergency.

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5. Start your retirement savings now.


You need to start making plans for your retirement right immediately, just as your parents sent you off to kindergarten to get you ready for success in a world that seemed to exist in the distant past.


Learning about the wonder (some might say power) of compound interest is a great way to start along the correct path. When you do, it will be obvious why you should start saving for retirement as soon as possible. Compound interest can be conceptualized simply as "interest on interest," which means that in addition to the principal (the money you put in), you will also earn interest on the interest (the money the bank pays you for holding your principal). Compound interest boosts your savings—especially over time—by causing your money to increase at a far quicker pace than simple interest, which is computed just on the principal.

Why wait until your 20s to begin investing for retirement? Once more, the earlier you begin saving, the less principle you will need to invest in order to accumulate the funds you require for retirement. Here's an illustration: Starting with $100 every month, you invest in the market with an average positive return of 1% per month (or 12% annually), compounded every month for 40 years. Your friend, who is the same age as you, starts investing 30 years later and makes $1,000 monthly investments for 10 years at an average rate of 1% per month (12% annually), compounded on a monthly basis. Your acquaintance will have amassed about $230,000 in savings after ten years. Over $1.17 million will be in your retirement account.

Particularly excellent options include retirement programs provided by your employer. You can contribute pretax monies, which lowers your income tax, but many employers will also match a portion of your gift, effectively giving you free money. Individual retirement accounts (IRAs) have lower contribution caps than 401(k)s, but if you're fortunate enough to have access to one, you're already one step closer to financial stability. 2

Don't lose hope if you can't use the company plan. Self-employed people have a variety of possibilities for creating retirement plans. Others can set up their own IRAs, enabling a predetermined monthly withdrawal from their savings account and a direct contribution to their IRA. Even if it's just a little bit, over time it will add up to something significant.

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6. Get a Handle on Taxes


It's crucial to comprehend how income taxation functions before you even receive your first paycheck. If a prospective employer offers you a starting salary, you should determine whether it will be sufficient for you to meet your financial responsibilities after taxes and, with careful preparation, your savings and retirement goals as well.

Fortunately, there are many online calculators, like PaycheckCity.com, that eliminate the tedious task of figuring out your after-tax income.

3 These tools will provide your gross pay (total earnings), tax burden, and net pay (earnings after taxes and other deductions, also known as take-home pay). For instance, in 2022, you would receive around $28,270 after federal and state taxes (without exemptions) on a $35,000 annual wage in New York City, or about $2,356 per month. (Therefore, you must also take into account city taxes.)

In a different circumstance, you might be thinking about switching jobs in order to earn a higher wage. You must first comprehend how your marginal tax rate—the tax rate you pay on new income—will impact your raise before you take this action. In the US, those with lesser incomes pay less tax than those with higher incomes; the higher your salary, the higher the tax rate. For instance, if your pay rises from $35,000 to $41,000 per year, it may appear that you will receive an additional $6,000 annually (or $500 per month), but because your tax rate will be higher, you will really receive an additional $4,227 (or about $352 per month). (The exact sum will vary based on state taxes where you live.) Please have it in mind if you're thinking about moving.

Spend some time learning how to do your own taxes. You won't need to pay a tax expert unless you have a complicated financial position, and it's not that difficult to do. Making your own taxes is now much simpler than it always was, and tax software also makes sure that you may file online.

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