As young adults navigate the world of finance, mastering specific skills becomes crucial. We asked five experts, including a Managing Partner and a COO, to share one crucial financial skill an 18-year-old must master for successful adulting. From mastering budgeting and debt reduction to grasping cash-flow scheduling, here are the top five skills these professionals believe are essential.
- Master Budgeting and Debt Reduction
- Understand Credit Card Management
- Distinguish Between Needs and Wants
- Learn Tax Planning Early
- Grasp Cash-Flow Scheduling
1. Master Budgeting and Debt Reduction
One important financial skill an 18-year-old needs to master for successful adulting is budgeting. Budgeting not only helps a person ensure that all of their fixed expenses are covered, but it can also help them set aside funds for unexpected costs such as medical bills or vehicle repairs.
One typical example of budgeting would be using the Debt Snowball strategy instead of more traditional methods, like making minimum payments and paying off the highest interest rate first. This method abstains from the traditional debt reduction approach and instead involves putting extra money towards smaller balances first while making minimum payments on the larger ones.
Eliminating one debt in full before tackling another it instills a feeling of accomplishment, which helps break down what could be an overwhelming task into manageable pieces.
2. Understand Credit Card Management
Understanding credit card management is crucial for 18-year-olds to navigate financial adulthood successfully. To avoid debt, it’s vital to comprehend how credit cards work, including spending limits, interest rates, and billing cycles.
Young adults should prioritize learning about maintaining a high credit score, adhering to minimum monthly payments, and making strategic bill payments. Comparing interest rates and choosing a suitable card are also essential. This knowledge ensures wise spending, timely bill payments, and a healthy financial future.
3. Distinguish Between Needs and Wants
At 18, the temptation to splurge on non-essentials can be overwhelming, thanks to slick advertising and social media pressures. Yet, distinguishing between “needs” and “wants” can be a financial lifesaver. It may sound elementary, but the implications are enormous.
This skill isn’t just about thrift; it’s about making wise choices in a consumer-driven world. The ability to discern necessities from luxuries can protect you from debt and set the stage for a financially secure future.
4. Learn Tax Planning Early
One crucial financial skill for an 18-year-old is to learn tax planning. Not having a good understanding of taxes as an adult can become a big problem. Planning your taxes will help you manage long-term financial goals, help you allocate funds smartly, and save for retirement without stress.
Remember, tax planning affects an individual’s investment returns. So, as an 18-year-old, learning this will aid you in making good investment decisions. When you learn to plan taxes, you will avoid common mistakes like filing a tax return on time, missing out on tax-saving opportunities, and not reporting income accurately. This helps maintain stability and avoid unnecessary financial burdens.
Last, mastering tax planning equips you with the tools needed to navigate the complexities of the modern financial world and achieve your financial goals.
5. Grasp Cash-Flow Scheduling
Even though they’re not necessarily in business, all new adults should understand cash-flow scheduling. One peril of an instant-gratification world is the widespread feeling that resources will directly match costs. In real “adulting,” the day you get paid is rarely the day your electrical bill is due.
Transform Financial Knowledge into Action: A Handy Guide for Young Adults
Ready to help your 18-year-old turn these vital financial skills into daily habits? Let’s make it actionable:
- Talk About Money: Open up a dialogue about finances. Discuss how budgeting works, why saving is essential, and how credit can be both a tool and a trap.
- Real-world Practice: Get them a prepaid debit card or a low-limit credit card to understand how managing money on a smaller scale feels.
- Incorporate Tech: Use budgeting and expense-tracking apps to make financial management more interactive and fun.
- Be the ‘Safety Net’: Offer to review their budget or credit card statements together, providing constructive feedback but letting them take the lead.
- Visual Aids: Create a financial vision board or set up reminders for bill payments and savings milestones. Visual cues can significantly impact good money habits.
Our Financial Wisdom: Your Adulting Game Plan
While expert advice offers a great roadmap, here are some additional tips to help your 18-year-old thrive financially:
- Involve Them in Family Finances: Let them participate in real-life budgeting or bill payments at home. It offers a hands-on learning experience.
- Teach the Importance of Emergency Savings: An emergency fund isn’t just for “grown-ups.” Teach them to set aside some money for unexpected expenses.
- Introduce Investment Basics: Even if it’s just a hypothetical stock portfolio, introduce the concept of investing and how it can grow money over time.
- Highlight the Cost of Debt: Use relatable examples to demonstrate how carrying debt can eat away at their hard-earned money through interest payments.
- Be Honest About Your Mistakes: We all have financial regrets. Share yours as cautionary tales to help them avoid making the same errors.
By adding these pointers to the mix, you’re not just helping your young adult with financial literacy but setting them up for long-term financial well-being. So go ahead, start the conversation, and watch them flourish in their new chapter of financial adulthood.