Mastering Adulting: Financial Tips Every Gen-Zer Should Know
If the acronyms IRA and HYSA look more like text abbreviations than savings tools to you, then you should take heed of these financial tips.
Being young and turnt is one of the most lavish parts of young adulthood. You get to make your own decisions and spend your own money. But when the funds are over, the fun’s over (see what I did there?).
As young adults, it’s important to start being vigilant about financial literacy. While there are tons of topics to cover, I’m going to discuss a few basic things everyone should know about finances, backed by experts, before turning 30.
Get Rid Of Debt
Don’t hide. I know between student loans and credit card bills, you’re probably not worried about tackling debt, but it’s a key move to becoming financially free. Your credit score impacts your ability to buy a car, lease an apartment, and much more. Building healthy credit is the first step to responsible money management.
To level up your credit game, financial expert Tiffany Aliche, aka The Budgetnista, advocates for the debt snowball method, emphasizing paying off smaller debts first to build momentum.
Besides the snowball method, here are some other key factors that impact your credit score:
Total accounts: Your Credit Mix accounts for about 10% of your FICO score. These mixes include installment loans and revolving credit.
Length of Credit: The longer your credit accounts have been open, the better. Generally, the length of your credit history makes up about 15% of your FICO score.
Inquiries: When you apply for a new credit card or loan, lenders pull a hard inquiry of your credit history. While hard inquiries represent healthy credit practice, you don’t want too many inquiries in a short period. Credit inquiries make up roughly 10% of your FICO score.
Revolving Utilization: Maintaining low revolving utilization is crucial for building credit. It's the ratio of your current balance to your credit limit. Ideally, aim to keep your spending below 30% of your credit limit.
Missed Payments: Consistently paying off debt is vital for your credit score, accounting for 35% of your FICO score. So make sure you’re making payments on time each month.
Start an Emergency Fund
Bola Sokunbi, Certified Financial Education Instructor (CFEI) and founder of Clever Girl Finance advises saving three to six months’ worth of living expenses. She emphasizes that these funds act as a safety net during unexpected emergencies.
A great way to beef up your emergency fund is to open up a High Yield Savings Account (HYSA). Unlike regular savings accounts, HYSAs offer a significantly higher interest rate, meaning your money grows much faster. While the national average yield for standard savings accounts is a paltry 0.58 percent APY, many HYSA options boast an APY of 5% or more. So let your money do its thing by parking it in a HYSA and watching those dollars multiply.
Start Investing Early
Early investing can be a game-changer, but we're not talking about sketchy Forex trading or questionable schemes here. Real investing requires research, time, and effort to build a portfolio that suits you. The primary aim is growing wealth through assets like stocks, bonds, real estate, or mutual funds. Essential basics include understanding your risk tolerance, conducting your research, and maintaining a diversified portfolio.
Save for Retirement
Saving for retirement is like playing the long game, but with the right saving tools, you can be a millionaire by the time you’re in your 60s.
Jatali Bellanton, the founder of Brilliant Minds Unite, a financial literacy movement for youth and adults, urges people to consider their financial goals for the future, including a retirement plan.
If you’re looking to save for a luxury retirement but don’t know where to start, Roth IRAs as a savvy move. These accounts allow your contributions to grow tax-free, ensuring that you keep every hard-earned penny when you cash out in retirement. So, start early, start saving, and go get that bag!
