iQuanti: Young adults often have limited knowledge about the world of personal finance. But whether they like it or not, money management is a part of growing up. The good news is there are a few key areas of personal finance that, once learned, can have an outsized impact on long-term success. Here are four things young adults should know about financial planning to ensure a stable financial future.
How to Set Great Savings Goals
Many young adults recognize the importance of saving money, but few understand how to set savings goals. The best goals are specific, measurable, achievable, realistic, and time-bound (SMART).
For example, many people's goals sound like, "I want to save $500." But a better goal will outline the goal's purpose and how it will be funded. That could look like, "I want to save $500 by June 1 to pay for my summer camping trip, and I'll contribute $50 a month toward this goal by cutting back on eating out two times."
The second savings goal is easy to stick with and realistic to achieve. In turn, the goal will have a much higher chance of success.
How to Protect Your Financial Plan
The shiny aspects of financial planning like investing and setting goals are easily the most appealing. But protecting a financial plan is a critical piece that many young adults do not consider. Protection comes in many forms, from setting up a life insurance policy to creating an emergency fund.
Whether term or whole life insurance, life insurance can help protect your loved ones if something unexpected happens to you. Especially for those who have children or are the primary breadwinner of their household, the right life insurance policy will ensure your family has income replacement if you're gone.
An emergency fund is another necessary form of protection. By saving up a cash cushion, you'll be protected from the unanticipated emergencies of daily life. And that means you won't need to take on debt to pay for a minor car repair or medical bill.
How to Create a Budget
Have you ever gotten to the end of the month with only a few dollars in your checking account and no idea how? Unfortunately, dollars without a clear purpose tend to disappear. But you can change the fate of lost money by creating a budget.
To build a successful budget, you'll need to figure out exactly how much of every paycheck will be earmarked for saving, investing, retirement, debt repayment, etc. Then, you can choose a budgeting approach. Some popular options to explore include a zero-based budget, the 50/30/20 budget, and the envelope method. Whichever method you choose, automation can help you stay on track.
How to Automate Your Finances
Automation in finances is one of the best ways to keep everything running smoothly. Once your paycheck hits your checking account, set up automatic transfers for emergency savings, bill pay, investments, etc., as it aligns with your budget.
Once your automation gets money where it needs to go, you'll know exactly how much is left over each month for spending. Plus, ensuring you have transfers happening for key transactions can help ensure you aren't missing any payments, which can help build credit.
The Bottom Line
When done properly, financial planning is about freedom and opportunity, not restriction. By setting great goals, putting protection in place, creating a budget, and automating your finances, any young adult is well on their way to a thriving financial future.
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Original Source: 4 Things Young Adults Should Know About Financial Planning
