8 Finance Tips For Young Adults18 May 2022
Being a young adult is a time to be independent, and that also entails financial independence. When young, you may have studied personal finance in school and your experience may be limited. But in the real world, things can get complicated. What we learn may not necessarily translate easily to reality. Here are 8 effective and practical finance tips for young adults.
Apply for a credit card
Apply once you have income. It can help you build a good credit score early and gain rewards. A healthy credit score is important because it can improve your chances with loan approvals, your interest rate on loans, access to better credit card deals, and many more. Credit card rewards are the points you gain when using a credit card that can be used to redeem a diverse range of items such as gadgets, food, and utilities. Some credit cards also offer cashback on your spending.
Make prompt and full payments so that you don’t accumulate interest. When used as such, it’s a good way to develop your spending discipline. So get it only if you are confident you will be able to pay your full monthly balance.
Being young, your spending may still be impulsive. Budgeting forces you to look at your spending habits and be able to identify the bad habits. For example, as a young adult, you may experience peer pressure to give in to the latest trends which are often unkind to the wallet.
Budgeting can also help pay off existing debt that many fresh graduates have such as student loans and car loans. Related to the previous point, budgeting also helps pay off your credit card debt.
Try the 50/30/20 rule as a simple budgeting framework:
- Allow up to 50% of your income for needs.
- Leave 30% of your income for wants.
- Commit 20% of your income to savings and debt repayment.
Start an emergency fund
According to RinggitPlus’ Financial Literacy Survey 2021, 50% of respondents cannot survive more than 3 months with their savings if they lose their job. Develop an early habit of saving money and treating it as a non-negotiable monthly expense. Soon you’ll have put enough money to contribute significantly toward your retirement plan.
If you have one source of income or are single, an emergency fund is important in case of unexpected job loss or illness. If you have just started budgeting, you may have left out expenses you did not plan for which can be covered by an emergency fund. Some financial experts recommend an emergency fund of 3-6 months’ worth of living expenses.
You may have just gotten your first job where you have to pay taxes. Do you know how much of your salary goes to taxes, and how much of it is take-home? Make sure you learn how to read it on your payslip. If your salary increased, you may have moved into a new tax bracket for the first time without realising how it affects your take–home income. A comprehensive guide on personal income tax in Malaysia can be found here.
Consider living with your parents
There is no shame in saving money. With greater savings comes more financial freedom. Besides, there’s nothing quite like the familiar, cosy feeling of home.
Consider used cars
Here are some reasons why:
- A vehicle will typically experience the most significant depreciation in the first two to three years of its use. It means that if you buy a used car, you will avoid the loss of money that results from this depreciation.
- Lower price.
- May cost less to insure.
- Modern cars are built to last.
When it comes to used cars, there are often worries. Although some of them are justified, they have to be assessed on a case by case basis, but should not be a deterrent to considering a used car. Here are some common used car worries and how we may abate them.
a) Hidden car problem.
A reputable dealer is important. Make sure they have made an effort to put the best condition up for sale, with good transparency in terms of the condition of the car and willingness to correct issues.
b) Paying higher than market value.
Use the Internet to compare prices.
c) Bad mileage that will incur high repair costs.
Mileage is important but so is service history. It may not be a good deal if a car has low mileage but has minimal service history. Make sure you get both information to make an informed decision.
In a worrying update in October 2021, EPF stated that only 3% of their contributors could afford retirement. Invest now because compound interest and retirement planning favour early starters.
Being young and able to take on a longer investment horizon, you can have a higher risk tolerance because of more recovery time if losses occur.
Investing doesn’t only mean financially! As you are still young, you can still explore and have the time to obtain many different skillsets. Invest in your skills to earn a higher income in the future.
Want to invest while at the same time be financially protected? GoProtect is an investment-linked plan with death and total & permanent disability benefit.
As a young adult, now is a great time to get insured. Here are some reasons why:
- Lower premium.
- May not have accumulated significant emergency funds to deal with unexpected financial setbacks.
- Have debts and do not want to further pile on them.
- Have family medical history.
- Want to be financially independent to ease parents’ burden.
Being a young adult is an important period that will set the tone for the rest of your financial future. Start building habits early so they are ingrained for the rest of adulthood. Taking control and managing your finances well is part of the journey to adulthood and financial independence of not relying on someone else’s income. Take complete responsibility for determining your future.