The holiday season is here, and, while it’s important to give thanks and spread holiday cheer, it’s also important to be mindful of your budget and savings. This is particularly important if you are a young adult still adjusting to living on your own, paying off bills and student loans, and earning an entry-level salary. Not sure where to start? No worries, below are some key money management tips to keep you on track during the holiday season and throughout the new year.
Document your monthly income and expenses, so you can create an accurate budget. If your monthly expenses are greater than your monthly income, you will need to make adjustments. Or alternatively, you may decide that you need to increase your monthly income by taking on additional work (part-time job, tutoring, etc.). The key to successful budgeting is that your income should be greater than your expenses, so you are able to build savings.
Outstanding debt costs you money in interest and fees, which lower your total monthly income. Ideally, you should pay off any credit card bills in full at the end of each month. If you are unable to pay the bill off each month, try to pay at least double the minimum amount due. This will save you interest and reduce the duration of your overall payoff.
Stores often offer significant discounts on purchases if you open a store credit cards. As tempting as it may be, avoid this. Opening a store credit account has the potential to increase your debt-to-income ratio or negatively impact your overall credit score. A poor credit score can affect your ability to buy larger items (car, house, etc.) in the future.
According to a recent article on American Savings Statistics, the number of Americans who have no cash in the bank to fall back on is shocking.
“Approximately 26 percent of adults have no savings set aside for emergencies, while another 36 percent have yet to start socking away money for retirement.”
Build up an emergency savings fund in case of emergencies (job loss, injury, etc.). Now is the time to establish financial goals for yourself and begin working toward them. Aim to save 10 percent of every dollar you earn. You can easily set up automatic monthly drafts to transfer money from your checking to a savings account.
Even though retirement may feel like a long way off, you need to begin planning for it now. If your employer matches 401(k) funds, contribute enough to receive the full match. It’s basically free money, and you should take full advantage of it. The compounding power of time is on your side which will help build your retirement wealth.
Learning good budgeting habits and how to manage money are important lessons to learn as a young adult — and ones that will carry you through the holidays and adulthood. If you are overwhelmed or unsure of how to get started, a financial advisor can help you determine the right steps to take for securing your financial future.
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.