12 Financial Advice for Young Adults: Building Healthy Financial Habits

In today’s fast-paced world, developing healthy financial habits is crucial for young adults. Every financial decision you make reinforces a habit, and with the right guidance, you can build a strong foundation for a secure financial future.

In this article, we will share 12 essential pieces of financial advice for young adults that will help them improve their financial responsibility and get ahead. Whether you’re just starting your career, heading off to college, or navigating the early stages of adulthood, these insights will equip you with the knowledge and tools to make informed decisions and build a solid financial future.

From saving and budgeting to investing and managing debt, these practical tips will empower you to take control of your finances and establish lifelong habits that will serve you well. By implementing these strategies early on, you can lay the groundwork for financial resilience and achieve your long-term goals.

So, if you’re ready to embark on a journey of financial growth and stability, let’s dive into these 12 essential pieces of financial advice for young adults.

1. Understanding the Power of a Positive Relationship with Money

Your financial situation starts with your mindset.

It’s important to clear out any negative feelings or insecurities about money that may hinder your financial wellbeing.

Research shows that Australians worry about money more than anything else in life.

By recognizing that money is not just about finance but also about emotions, you can take control of your relationship with money.

Understand that anxiety or avoidance of money issues can create a vicious cycle.

Additionally, your upbringing may influence how you manage your money.

With awareness, insight, and knowledge, you can make empowered decisions about your finances.

Research shows that financial concerns are a top source of stress for many individuals.

In fact, in Australia, money-related worries are often ranked higher than any other life stressors.

Acknowledging this and understanding the emotional aspect of money can help you take control of your relationship with it.

• Reflect on your money mindset: Take time to assess your beliefs and attitudes towards money. Identify any negative patterns or limiting beliefs that may be hindering your financial wellbeing. Awareness is the first step toward positive change.
• Separate emotions from finances: Recognize that money is not solely about numbers and finances; it also has an emotional aspect. Understand how your emotions and past experiences shape your relationship with money. Separate any anxiety or avoidance behaviors from addressing your financial situation.
• Break free from financial stress: Financial concerns can be a significant source of stress. Acknowledge and address your money-related worries. By taking proactive steps to improve your financial situation, you can break free from the cycle of stress and gain a sense of control.
• Learn from your upbringing: Reflect on how your upbringing and past experiences with money may have influenced your financial habits. Understand the positive and negative aspects of your financial upbringing, and use that knowledge to shape your own approach to managing money.
• Continuous learning and growth: Developing a positive relationship with money is an ongoing process. Stay curious and seek knowledge about personal finance advice. Engage in financial education, read books, attend seminars, and follow reputable financial experts. Continuously refine your mindset and approach to ensure a strong financial future.

By addressing any anxieties or avoidance behaviors related to money, you can break free from a vicious cycle of financial stress.

Take the time to reflect on your beliefs and attitudes towards money and identify any negative patterns or limiting beliefs that may be holding you back.

It’s also important to recognize that your upbringing and past experiences can influence how you approach and manage your finances.

If you grew up in a household where money was a source of tension or scarcity, it’s crucial to understand how those experiences may impact your own financial habits and mindset.

By gaining awareness, insight, and knowledge about these influences, you can make more empowered decisions about your finances.

Remember, developing a positive relationship with money is a continuous process.

Be patient with yourself as you work towards cultivating a healthy mindset and approach toward your financial future.

2. Tracking Your Expenses: Know Where Your Money Goes

Developing a habit of tracking your expenses is a great way to gain control over your finances.

Start by tracking everything you spend for a short period, like a month.

This will provide insights into your spending habits and reveal areas where you may be overspending.

For example, buying a $4 coffee five days a week may cost you over $1,000 in a year.

Consider using a money diary to jot down every transaction and analyze your spending patterns.

By understanding where your money goes, you can make informed decisions about your spending.

To effectively track your expenses, start by committing to a short-term period, such as a month, where you record every single expenditure.

This exercise will provide valuable insights into your spending habits and highlight areas where you may be unknowingly overspending.

For instance, that daily $4 coffee may seem insignificant, but when you calculate the annual cost, it can add up to over $1,000.

By tracking your expenses, you’ll become more aware of such patterns and be better equipped to make conscious choices about where your money goes.

Consider using a money diary or a smartphone app to jot down every transaction you make.

• Start with a short-term tracking period: Commit to tracking all your expenses for a month. This will provide valuable insights into your spending habits without feeling overwhelmed.
• Use a money diary or app: Record every transaction and categorize your expenses. This will help you visualize your spending patterns and identify areas where you can make adjustments.
• Identify overspending areas: Analyze your spending data to pinpoint areas where you may be overspending. Small daily expenses, like that $4 coffee, can add up significantly over time.
• Set realistic financial goals: Allocate specific amounts for different expense categories in your budget. Strive to stay within those limits to ensure you’re using your money wisely and in alignment with your priorities.
• Regularly review and adjust: Make it a habit to review your expenses regularly. This will help you stay on track and make necessary adjustments to your spending habits. Continuously refining your approach will lead to better control over your finances.

Categorize your expenses, such as groceries, dining out, transportation, entertainment, and so on.

This will help you visualize your spending patterns and identify any areas where you can cut back or make adjustments.

Once you have a clear picture of your spending habits, set realistic financial goals.

Allocate a specific amount for each category in your budget and strive to stay within those limits.

Tracking your expenses allows you to make informed decisions about your spending, ensuring that your money is being used in ways that align with your priorities.

Remember, tracking your expenses is an ongoing practice.

Review your spending regularly and make adjustments as needed.

Over time, this habit will help you develop better control over your finances and enable you to make smarter financial choices.

3. Setting Savings Goals and Creating a Budget

Goal setting is an essential step in achieving financial success.

Visualize your future and identify your financial priorities.

Ask yourself important questions about your ideal lifestyle, work-life balance, and the things that matter to you.

Setting Specific, Measurable, Achievable, Realistic, and Time-bound (SMART) goals will help you create a roadmap to achieve them.

• Visualize your future: Take the time to envision your ideal lifestyle and identify your financial priorities. This will give you a clear direction and motivation for setting savings goals.
• Ask important questions: Reflect on what matters to you in life. Consider questions about your desired work-life balance, long-term aspirations, and the experiences you want to have. This will help you set meaningful and personalized financial goals.
• Set SMART goals: Make your goals Specific, Measurable, Achievable, Realistic, and Time-bound (SMART). For example, if you want to save for a vacation, define the destination, duration, and budget required. Setting clear goals provides a roadmap for your financial journey.
• Create a simple budget: Develop a budget that aligns with your savings goals. Allocate your income towards different categories, such as housing, transportation, groceries, entertainment, and savings. Prioritize your spending based on your goals and make conscious choices about your expenses.
• Enjoy the benefits of goal-oriented budgeting: By aligning your budget with your goals, you can prioritize your spending accordingly. This approach allows you to make informed choices, avoid unnecessary expenses, and achieve financial milestones effectively.

For instance, if your goal is to take a vacation, specify the destination, duration, and budget.

A simple budget will allow you to allocate your spending wisely and work towards your goals.

Benefits of Goal-oriented Budgeting

• Prioritize your spending based on your goals.
• Make informed choices about your expenses.
• Achieve financial milestones effectively.

4. The Three-Category Approach to Budgeting

To simplify your budgeting process, consider adopting the three-category approach.

Categorize your expenses into commitments, everyday expenses, and occasional expenses.

Commitments include fixed payments like rent, loan repayments, and utility bills.

1. Commitments: This category includes fixed payments that you need to make regularly. Examples of commitments are rent or mortgage payments, loan repayments, insurance premiums, utility bills, and subscription services. These expenses are essential and typically remain consistent from month to month. By identifying and prioritizing your commitments, you ensure that these necessary payments are accounted for in your budget.
2. Everyday Expenses: This category covers your day-to-day necessities and recurring expenses. It includes items such as groceries, transportation costs, healthcare expenses, childcare, and other essential expenses required for your daily living. These expenses may vary from month to month but are generally consistent. Tracking and managing your everyday expenses can help you identify areas where you can potentially reduce costs and make more efficient use of your resources.
3. Occasional Expenses: This category comprises discretionary spending and occasional or irregular expenses that occur less frequently. It includes expenses for entertainment, dining out, vacations, gifts, hobbies, and personal indulgences. Unlike commitments and everyday expenses, occasional expenses may not occur every month, but they still need to be considered in your budget. By planning and allocating funds for these occasional expenses, you avoid financial surprises and ensure that you have the means to enjoy activities or treat yourself without compromising your financial stability.

Adopting the three-category approach to budgeting allows you to have a clear understanding of your financial obligations, regular expenses, and discretionary spending.

By organizing your expenses into these categories, you can better prioritize your budget, allocate your resources efficiently, and make informed decisions about your spending habits.

Regularly reviewing and adjusting your budget based on changes in these categories will help you stay on track and achieve your financial goals.

Everyday expenses cover necessities like groceries, while occasional expenses include discretionary spending on fashion, gifts, and entertainment.

By understanding these categories, you can better manage your budget and allocate your resources efficiently.

5. Apply the “Pay Yourself First” Strategy

Saving on a regular basis is crucial for financial resilience and achieving your goals.

Embrace the “pay yourself first” strategy, which involves setting aside a specified amount from each paycheck into a separate savings account.

By prioritizing savings over everyday expenses, you ensure that you are building a strong financial foundation.

Consider setting up an automatic savings plan to make the process even easier.

Take advantage of savings accounts that offer higher interest rates and allow your money to grow through compounding interest.

• Determine an Appropriate Savings Percentage: When implementing the “pay yourself first” strategy, it’s important to decide on a specific percentage or amount to save from each paycheck. While the ideal amount may vary depending on your financial situation, a general rule of thumb is to aim for saving at least 10% to 20% of your income. However, if you can save more, it will accelerate your progress toward achieving your financial goals.
• Separate Savings Account: It’s recommended to have a separate savings account dedicated solely to your long-term savings goals. This separation helps prevent you from dipping into your savings for everyday expenses and keeps your savings goals distinct from your regular spending. Consider opening a high-yield savings account or a certificate of deposit (CD) that offers competitive interest rates, allowing your money to grow faster.
• Automate Your Savings: Setting up an automatic savings plan can make saving easier and more consistent. Talk to your bank or financial institution to arrange an automatic transfer of funds from your checking account to your savings account on a specific date each month or whenever you receive your paycheck. By automating the process, you’ll remove the temptation to skip saving or spend the money elsewhere.
• Prioritize Saving: When implementing the “pay yourself first” strategy, it’s essential to prioritize saving over everyday expenses. This means allocating the predetermined percentage or amount towards savings before paying for bills, groceries, or discretionary spending. By making savings a priority, you create a habit of saving and ensure that your financial future remains secure.
• Take Advantage of Compounding Interest: Look for savings accounts that offer higher interest rates or consider investing in vehicles like certificates of deposit, stocks, or mutual funds that have the potential for higher returns. Compounding interest allows your money to grow over time, as the interest earned on your savings is reinvested and added to your principal amount. Over the long term, this compounding effect can significantly boost your savings.

Remember, the “pay yourself first” strategy is a powerful tool for building financial resilience and achieving your goals.

By consistently saving a portion of your income and allowing your savings to grow through compounding interest, you can create a strong financial foundation and cover the way towards financial success.

6. Plan for the Unexpected: Build an Emergency Fund

Life is unpredictable, and having an emergency fund is essential for financial security.

Set aside a designated amount that can cover unexpected expenses, such as car repairs or medical bills.

This fund will provide you with peace of mind and protect your financial stability.

Once you have established your emergency fund, continue saving for other goals.

Life is full of surprises, and it’s crucial to be prepared for unexpected financial emergencies.

Establishing an emergency fund is a key component of financial planning.

• Determine the Size of Your Emergency Fund: The size of your emergency fund will depend on your individual circumstances, such as your income, expenses, and family size. As a general guideline, aim to save three to six months’ worth of living expenses. This amount should cover essential costs like housing, utilities, groceries, transportation, and debt payments.
• Start Small and Gradually Increase: Building an emergency fund may seem daunting, especially if you’re starting from scratch. Begin by setting achievable savings goals, such as saving one month’s worth of expenses, and gradually work your way up. Every contribution, no matter how small, adds up over time and brings you closer to your goal.
• Make Regular Contributions: Consistency is key when it comes to building an emergency fund. Allocate a portion of your income specifically for emergency savings each month. Treat it as a non-negotiable expense, just like paying your bills. Automating your savings can make it easier to stay on track and ensure regular contributions.
• Use the Fund for True Emergencies Only: It’s important to define what constitutes a genuine emergency. An emergency should be an unexpected expense that significantly impacts your financial stability, such as medical emergencies, major car repairs, or job loss. Avoid dipping into your emergency fund for non-essential purchases or vacations. Maintaining discipline with the use of your emergency fund will help it last longer and fulfill its intended purpose.
• Replenish the Fund: If you have to use your emergency fund, make it a priority to replenish it as soon as possible. Resume your regular contributions and allocate any windfalls, such as tax refunds or bonuses, towards rebuilding your emergency fund. Restoring the fund to its original size ensures you remain protected against future unexpected expenses.
• Continuously Save for Other Goals: Once you have established your emergency fund, don’t stop there. It’s important to continue saving for other financial goals, such as retirement, a down payment on a home, or a dream vacation. By having separate savings accounts for different purposes, you maintain clarity and avoid depleting your emergency fund for non-emergency expenses.

By prioritizing the creation of an emergency fund, you build a safety net that safeguards your financial stability.

Having this buffer in place allows you to navigate unexpected challenges with greater ease and helps prevent debt accumulation.

Ultimately, an emergency fund provides peace of mind, empowering you to pursue your long-term financial goals with confidence.

7. Manage and Reduce Debt Responsibly

Debt can be a significant obstacle to financial freedom, so it’s essential to manage and reduce it responsibly.

Start by listing all your debts, including credit cards, student loans, and any other outstanding loans.

Understand the interest rates, minimum payments, and repayment terms for each debt.

Create a plan to tackle your debt by prioritizing higher-interest debts or utilizing strategies like the debt avalanche or debt snowball method.

Make consistent payments and avoid taking on additional debt whenever possible.

8. Build a Strong Credit History

A good credit history is essential for various financial endeavors, such as renting an apartment, getting a loan, or applying for a credit card.

To build a strong credit history, make sure to pay your bills on time, maintain a low credit utilization ratio, and avoid excessive credit applications.

Regularly check your credit report to identify any errors or discrepancies and take steps to correct them.

Building a positive credit history from a young age will benefit you in the long run.

Strong credit history is invaluable for accessing financial opportunities and achieving your goals.

By actively managing your credit, you can establish a positive credit history that opens doors to various financial endeavors.

• Pay Bills on Time: Timely bill payments are crucial for maintaining a good credit history. Late or missed payments can negatively impact your credit score. Set up reminders, automate payments, or create a budget to ensure you meet all your financial obligations promptly.
• Maintain a Low Credit Utilization Ratio: Your credit utilization ratio is the amount of credit you use compared to your total credit limit. Aim to keep this ratio below 30% to demonstrate responsible credit usage. High utilization ratios can signal financial instability and lower your credit score. Paying off balances in full each month and avoiding maxing out your credit cards can help maintain a low credit utilization ratio.
• Minimize Credit Applications: Applying for multiple credit accounts within a short period can raise concerns among lenders. Each application creates a hard inquiry on your credit report, which can temporarily lower your credit score. Be selective with your credit applications and only apply for credit when necessary.
• Check Your Credit Report Regularly: It’s essential to review your credit report at least once a year to ensure its accuracy. Monitoring your credit report allows you to identify any errors, fraudulent activity, or discrepancies that could harm your credit history. If you notice any inaccuracies, promptly dispute them with the credit reporting agencies to have them corrected.
• Establish Credit Early: Building a positive credit history from a young age is advantageous. Consider applying for a secured credit card or becoming an authorized user on a family member’s credit card to start building credit. Use these credit accounts responsibly, making regular payments and keeping balances low to establish a solid credit foundation.
• Diversify Your Credit Mix: Having a mix of different types of credit accounts, such as credit cards, student loans, or a mortgage, can contribute positively to your credit history. Demonstrating responsible management of different credit types shows lenders that you can handle various financial obligations.
• Be Patient and Persistent: Building a strong credit history takes time and consistent positive credit behavior. It’s essential to be patient and persistently follow good credit practices over the long term. Stay disciplined, maintain good financial habits, and avoid shortcuts or quick fixes that promise instant credit repair.

By actively managing your credit and building a strong credit history, you enhance your financial reputation and increase your access to favorable credit terms and opportunities.

A positive credit history serves as a testament to your financial responsibility and sets the stage for future financial success.

9. Invest in Your Future

Start Saving and Investing Early Investing is a powerful tool for building wealth over time.

As a young adult, you have the advantage of time on your side.

Start saving and investing early to take advantage of compounding returns.

Consider opening a retirement account, such as a 401(k) or an Individual Retirement Account (IRA), and contribute regularly.

Learn about different investment options, such as stocks, bonds, mutual funds, or exchange-traded funds (ETFs), and seek professional advice if needed.

Diversify your investments to manage risk and maximize potential returns.

• Start Saving and Investing Early: Time is a valuable asset when it comes to investing. As a young adult, you have the advantage of compounding returns. The earlier you start saving and investing, the more time your money has to grow.
• Consider Retirement Accounts: Take advantage of retirement accounts like a 401(k) offered by your employer or an Individual Retirement Account (IRA). These accounts provide tax advantages and long-term savings benefits. Contribute regularly to benefit from potential employer matching contributions or tax-deferred growth.
• Educate Yourself: Learn about different investment options such as stocks, bonds, mutual funds, or exchange-traded funds (ETFs). Understand their risk and return profiles to make informed investment decisions. Resources like books, online courses, or financial advisors can help you gain knowledge and confidence in investing.
• Seek Professional Advice: If you’re unsure about investing or need assistance with complex financial matters, consider consulting with a financial advisor. They can provide personalized guidance, help you develop an investment strategy aligned with your goals, and navigate market fluctuations.
• Diversify Your Investments: Diversification is key to managing risk and maximizing potential returns. Spread your investments across different asset classes, industries, and geographical regions. Diversification helps reduce the impact of any single investment’s performance on your overall portfolio.
• Monitor and Adjust Your Portfolio: Regularly review your investment portfolio to ensure it aligns with your financial goals and risk tolerance. Adjust your holdings as needed to maintain diversification and respond to changing market conditions. However, avoid making impulsive decisions based on short-term market fluctuations.
• Keep a Long-Term Perspective: Investing is a long-term endeavor. Stay focused on your goals and resist the urge to react impulsively to short-term market volatility. Maintain a disciplined approach and avoid making emotional investment decisions.

Remember, investing in your future is essential for building wealth and achieving financial security.

By starting early, educating yourself, diversifying your investments, and seeking professional guidance when needed, you position yourself for long-term financial success.

10. Continuously Educate Yourself about Personal Finance

Financial literacy is a lifelong journey, and it’s important to continuously educate yourself about personal finance.

Stay updated on financial news, trends, and investment strategies.

Read books, attend seminars, and follow reputable financial websites and blogs.

By expanding your knowledge and staying informed, you’ll make better financial decisions and adapt to changing economic conditions.

Financial literacy is an ongoing process, and staying informed about personal finance is crucial for making informed decisions and adapting to changing economic conditions.

• Stay Updated on Financial News and Trends: Follow reputable financial news sources to stay informed about the latest market trends, economic indicators, and financial developments. Subscribe to financial publications, watch financial news channels, or utilize reliable online resources to keep up with current events that may impact your finances.
• Read Books and Attend Seminars: Books and seminars are excellent resources for expanding your knowledge on personal finance. Look for titles written by reputable authors that cover various financial topics, such as budgeting, investing, or retirement planning. Attend seminars or workshops offered by financial experts in your community or online to gain insights and practical tips.
• Follow Reputable Financial Websites and Blogs: Explore reputable financial websites and blogs that provide educational content and insights on personal finance. Many websites offer articles, calculators, and tools that can help you better understand and manage your finances. Seek out blogs written by experts in the field or individuals who share valuable personal finance advice and experiences.
• Engage in Online Communities: Join online communities or forums dedicated to personal finance discussions. Participating in these communities allows you to learn from others’ experiences, ask questions, and gain different perspectives. However, remember to verify the information and rely on reputable sources when making financial decisions.
• Attend Webinars and Podcasts: Take advantage of webinars and podcasts that cover various financial topics. Many financial experts and institutions offer free webinars or podcasts that provide valuable insights and practical advice on personal finance. These formats offer convenience and flexibility, allowing you to learn at your own pace.
• Consider Professional Financial Education: If you desire a deeper understanding of personal finance or have complex financial needs, consider pursuing professional financial education. This may include obtaining certifications, such as Certified Financial Planner (CFP®), or enrolling in courses offered by reputable educational institutions or industry associations.

By continuously educating yourself about personal finance, you enhance your financial knowledge and decision-making abilities.

Staying informed about financial news, reading books, attending seminars, following reputable websites and blogs, and engaging with online communities all contribute to your financial literacy.

The more you learn, the better equipped you’ll be to navigate the ever-changing financial landscape and make informed choices that align with your goals.

11. Practice Mindful Spending and Avoid Impulse Purchases

Mindful spending involves being intentional and conscious about your purchases.

Before making a buying decision, pause and ask yourself if it aligns with your values and financial goals.

Avoid impulsive purchases by implementing a “cooling-off” period, where you wait a set amount of time (e.g., 24 hours) before making a non-essential purchase.

This practice helps you differentiate between wants and needs, ultimately leading to more controlled spending and increased savings.

Mindful spending is about being intentional and thoughtful when making purchasing decisions.

By practicing mindful spending and avoiding impulse purchases, you can better align your spending with your values and long-term financial goals.

• Pause and Assess: Before making a purchase, take a moment to pause and assess whether it aligns with your values and financial goals. Ask yourself if the item or experience is truly necessary or if it’s a fleeting desire. This mindful approach helps you prioritize your spending and make choices that bring genuine value to your life.
• Implement a “Cooling-Off” Period: To curb impulse purchases, implement a “cooling-off” period before buying non-essential items. This period could be 24 hours, a week, or even longer, depending on the value of the purchase. During this time, step away from the immediate temptation and give yourself space to evaluate whether the purchase is truly worth it. Often, you’ll find that the initial urge fades, leading to more deliberate and controlled spending.
• Differentiate Between Wants and Needs: It’s essential to distinguish between wants and needs to make mindful spending decisions. Needs are essential for survival and well-being, such as food, shelter, and healthcare. Wants, on the other hand, are desires that may provide temporary satisfaction but aren’t essential. By recognizing the difference, you can focus your resources on fulfilling genuine needs and make conscious choices about wants.
• Create a Spending Plan or Budget: A spending plan or budget is a powerful tool for practicing mindful spending. Allocate your income to different categories based on your priorities and financial goals. Set aside specific amounts for necessary expenses, savings, and discretionary spending. By having a clear plan, you’re more likely to make informed choices and avoid impulsive purchases that don’t align with your budget.
• Reflect on Your Purchases: Regularly review your past purchases and reflect on their impact. Assess whether they brought you lasting satisfaction or if they were short-lived impulses. This reflection can help you become more aware of your spending patterns and make adjustments to align with your values and long-term goals.
• Practice Gratitude: Cultivating gratitude for what you already have can shift your perspective and reduce the desire for unnecessary purchases. Take time to appreciate the things and experiences you currently enjoy, which can help you find contentment and reduce the urge to constantly acquire more.

By practicing mindful spending and avoiding impulsive purchases, you gain greater control over your finances and allocate your resources in a way that aligns with your values and goals.

It promotes a healthier relationship with money, reduces financial stress, and allows you to focus on what truly matters in your life.

12. Seek Professional Financial Advice

While it’s important to educate yourself about personal finance, there may be instances where seeking professional financial advice is beneficial.

Financial advisors can provide personalized guidance based on your unique financial situation and goals.

They can help you create a comprehensive financial plan, optimize your investments, and navigate complex financial matters such as tax planning and estate planning.

When choosing a financial advisor, look for credentials, experience, and a fiduciary duty to act in your best interest.

Conclusion:

Developing healthy financial habits as a young adult is a critical step toward achieving financial security and building wealth.

By adopting this essential financial advice for young adults, you can take control of your finances, set goals, budget effectively, manage debt responsibly, and invest for the future.

Remember, building healthy financial habits takes time and discipline, but the long-term benefits are well worth the effort.

Start today and build the way to a financially secure future.