The younger you are, the more important it is to understand how to financially succeed. Getting an early start can be the very reason that you stay afloat for the rest of your life. The best part is that you don’t need a job or an active income to get started. Just follow these tips to rock your finances from the beginning, so you have breathing room when you need it.
1. Get a Credit Card and Use It Wisely
Young people with credit cards tend to get a bad rap due to a negative perception of their self-control. But the truth is, if you use one with care, it can help you gain control. Just keep your spending predictable. To do this, you can attach your card to automatic bill payments or use it specifically for one item like groceries or gas each month. Taking care in your usage also builds your credit score.
One of the struggles of starting young is getting approved with little or fluctuating income. Don’t fret if you have trouble getting approved — there are cards available for your exact situation. Instead of a standard credit card, you’re more likely to get approved for a credit builder card. These cards require an initial deposit, which reduces the risk of spending money you don’t have.
2. Budget for Needs First
Temptations abound when payday arrives, but don’t give in immediately — you’ll get there soon! First things first, make sure you calculate how much money you need for things like rent, groceries, and other bills. Then, in your budgeting program or spreadsheet, put that money aside and out of mind until it is needed. These are your funds for necessities, and they should not be touched except for those things.
Let’s say you make $2,000 a month, rent is $800 monthly, bills are an extra $300, and groceries cost about $200. In total, necessities are $1,300; use your preferred budgeting method to isolate these funds as soon as you get paid. Try the 50/30/20 rule as a simple budgeting framework. Allow 50% of your income for needs, 30% for wants, and commit 20% to savings. Having this money planned means you won’t have to worry about any lowered credit or additional debt as deadlines approach.
3. Start Saving Early
Before moving on to your wants, figure out a good plan for how to build your savings. This is the best part of the process to start young because you have fewer financial responsibilities. Just put some of your disposable income away, no matter how much or how little it is. Even if you’re in high school and working a part-time job, that money can be an asset for future you.
You may currently be living paycheck-to-paycheck and feel you can’t focus on building savings, but building savings doesn’t have to mean you’re putting away a lot — as the name suggests, it’s about the build-up. If you put away $20 a month, for instance, in a year you’ll have $240 saved up. It’s not life-changing, but the earlier you start, the sooner you’ll see that growth.
4. Make Room for Wants
Once the important things are sorted out, you can make some room for excitement! Think about the things that cost you money and bring you joy: going out with friends, ordering in, or taking trips. These things can be costly but are worth your money and time if they make you feel good. Remember that having control over your finances isn’t about avoiding spending in general but rather maintaining a balanced system.
You’ve already accounted for necessities and savings, so why not put the rest toward something fun? You can create categories for each activity you enjoy and allocate this money accordingly or not make a plan at all. It’s completely up to you because you’ve already established that your necessary payments are guaranteed. Just be sure to watch your account balance so you stay within that amount!
5. Pay Every Bill on Time
Prioritizing necessary funds before any other kind yields the added bonus of ensuring you keep track of your bills responsibly. As their deadlines approach, you already have the funds ready to go, so send them out on time. Every punctual payment reported to credit bureaus boosts your credit score and late ones can do the opposite. And unfortunately, a low credit score is much harder to change than a high one.
High credit looks good to lenders because it shows you’re a reliable person to lend money to. This will help get you approved for auto loans or mortgages down the line. It may not sound urgent to begin building credit, but every second counts. Ultimately, it’s bill payments that can make the difference. In fact, one of the main purposes of using credit cards is to receive bills to pay them off and gain credit. Make a habit of timely payment to show predictability and reliability to lenders.
Despite the possible intimidation, it’s not too complicated to get started on improving your finances as a young person. You can realistically set all of this up in a single budgeting session, if you really want to. Also, because you’re young, you have some room for mistakes while you build your fiscal discipline. Get excited — your financial future awaits!