As a young person, how robust are your finances? Are you living paycheck to paycheck? If you are, you're like 62% of millennials.
It's very important that young people learn to manage their money wisely. It's preparation for your future. Read on to learn the 5 rules of financial health that every young person should know.
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Your Financial Health
You might dream of winning a lottery or receive an unexpected bequest that will change your life but seriously, is it likely? Think of your finances like your health. Financial health and physical health are the results of good habits, sustained over a lifetime.
Good financial habits and a financially sustainable lifestyle keep your financial health good. It means you can fight off financial problems if they occur. It also allows you to grow your economic strength and help you have a long and happy life.
1. All About the Balance
Good financial health is all about balance. Keeping a healthy balance between the money that you earn and the money that you spend is the first of these financial balances to get right.
You can't keep control of your finances without being able to account for it. You need to calculate what you earn and spend. It may be boring and difficult to start with but you'll soon get into the routine and it will help you keep control.
Another balancing act is the relationship between your debt and what you own. This is your net worth. Calculate it from time to time to understand where your strengths and weaknesses are.
2. Don't Spend, Spend, Spend
You may find that as you grow older that your income increases. Your career progress might be reflected in a bigger paycheck. It's tempting to treat this increase in earnings as an opportunity to spend more too.
Lifestyle inflation can quickly overtake the increase in your earnings. To avoid this, set a budget.
Be clear about what your needs are and distinguish them from your wants. Keep control of your spending and you could find that extra earnings can allow you to keep more of your money.
3. Save It
A habit of saving can start very early with a few dollars a month. If you always save, as your earnings increase you can save more. There's another important reason to start early.
Savings that you make early attract growth over the longer term. Interest is compounded so even a small amount saved for a long time can be very rewarding. Make some of your savings part of a retirement fund.
4. Invest It
While you build up some savings and a retirement fund you can also allocate some of your surplus cash for investments. Take an interest in investments by checking stock research websites and following the financial news. Remember that investments don't always go up.
5. Back-Up Fund
Put some money aside for emergencies. It's useful to have cash that you can access easily when something goes wrong. A car repair or losing your job is much easier to withstand if you have six months' salary set aside.
Keep up your financial health. Make it a habit and it won't feel so tough to do it. Remember to enjoy the simple things and you'll appreciate the security of a healthy bank balance too.