10 Budgeting Tips for Young Adults That Last a Lifetime

By UBank
Monday, July 24, 2023

The spending habits you develop now can last a lifetime. Especially when you turn 18 and become independent, the early years of bearing sole responsibility for your money can become the foundation of a thriving, blossoming financial future. But how exactly do you get your finances right from the start, you ask? We say the answer is simple: budgeting! If you’re budget-savvy from the very moment you start covering your own expenses, you’ll find it easy to save for big purchases. You’ll also have no trouble paying for unexpected emergencies, investing money, and building a strong credit history if you master budgeting sooner than later. Our 10 budgeting tips for young adults will help you properly manage your finances today — and for decades to come.

1. Create a budget

All great budgeting starts with — you guessed it — a robust monthly budget. This is a set of spending categories and caps alongside estimates of your monthly income. These spending categories should include essentials such as rent, groceries, utilities, and insurance. They should also include nice-to-haves such as dining out, entertainment, and any other purchases that truly bring you joy. Some expenses, like your rent, are fixed each month. Others, like your electric bill, probably fluctuate from month to month. In either case, setting a clear budget is how you keep yourself out of debt, feel confident you can afford your expenses, and buy nice things.

Your budget should be based on how much take-home pay you earn per month. Some of this money should go toward essential expenses, some toward savings, and the remainder toward whatever else you see fit. Budgeting templates and apps can help you carve out your budget, as can bankers in your area and some common principles for managing your money.

2. Save, cover the essentials, and buy some nice-to-haves

Your financial advisor will likely tell you to follow the “50/30/20 rule,” and we agree. Under this rule, you’ll allocate 50% of your budget to essentials, 30% to nice-to-haves, and 20% to savings. So, if your monthly take-home pay is $3,000, you’d allocate $1,500 to essentials, $900 to nice-to-haves, and $600 to savings.

Depending on your financial situation, you might need more money for your essentials or savings. That’s where cutting back on non-essentials comes into play. One of the easiest ways to do this is to buy groceries and cook at home rather than ordering takeout or going to restaurants. You can also look for lower-cost or free entertainment with friends — a walk through a park can be as memorable as dinner and a movie.

3. Always set aside some money — even just a little

Sometimes, it can be hard to save money, especially when your income isn’t that big yet. But every little bit counts! Even putting aside a small amount each month can make a difference. For starters, any money you put into a savings account earns compound interest — you earn money just by storing your money. On top of that, savings are key to have around when emergencies strike or when you’re finally ready to make that big purchase.

Another key personal finance principle when it comes to savings: Start an emergency fund comprising three to six months of your take-home pay. You might find this goal most feasible if you work toward it over six to 18 months. Even the tiniest bit of money you put aside now, though, will be there whenever an emergency happens — you never know when that might be.

4. Set financial goals

We’re definitely saying that saving is necessary, but we’re not saying it’s always easy — we know how tough it can be! That’s why setting financial goals is one of our biggest financial tips for young adults. Plus, you can start doing this at any age.

For example, you might not start paying off your student loan until six months after you graduate from college. But loans are expensive, and starting to put aside money each month sooner than later can help you pay when it’s time. You can set three types of financial goals:

  • Short-term goals. Set these when you’re trying to make a hundred- or thousand-dollar purchase within a year.
  • Mid-term goals. With these one-to-five-year goals, you can cover a down payment or pay off a loan.
  • Long-term goals. These five-year-plus goals are for the big purchases — your first house, a new car, things of that sort.

It can be much easier to start saving money properly once you’ve figured out what you want and how long you’ll need to get it.

5. Track your expenses

Your savings are just one part of the 50/30/20 rule — there are also your essential and non-essential expenses. It’s easiest to know whether you’re following the rule when you’re actively tracking both types of expenses. Budgeting apps can help you track your spending every day and automatically categorize your expenses. You can then look at the data in your app to see whether you’re spending within your limits. From there, you can figure out how to cut back on non-essentials and stay within your budget.

6. Be smart about your debt

You might be nervous about taking on debt, and some caution is definitely smart. There’s also some strategy involved — namely, keeping your debts low and paying off certain debts sooner than others. Experts suggest keeping your debt-to-income ratio (DTI) below 35% — as in, your maximum debt should be 35% of your income. If your monthly take-home pay is $3,000, that means your monthly debt should be at most $1,050. Paying off your debts with higher interest rates first can help you get below this maximum and lower your debt expenses. This way, you’ll be left with debts that accumulate interest more slowly. This interest is the main danger of excess debt. It can result in your debts ballooning, with credit card interest rates known to be especially high. Responsible credit card usage means paying off your balance monthly to avoid any extra fees.

7. Find ways to increase your income

Limited income might be one of your biggest challenges right now, and you can address that in creative ways. For example, if you’re in college, you can try tutoring from home, via your laptop, so you can earn money without any commuting. You can also freelance in the area you’re studying — or, if you’ve graduated, you can freelance outside your day job. All this money can go toward your savings, and if you’re freelancing, there’s a special type of savings you should keep in mind.

8. Understand how income taxes work

Suppose your annual salary is $45,000. Unfortunately, that doesn’t mean you’ll get all of this money. If you’re a full time W2 employee, your employer will take out some of this money before it reaches you. This money goes toward two types of federal taxes: Income taxes and FICA taxes. The government levies income tax differently on different portions of your salary, whereas FICA tax rates are the same for everyone. It’s also why you should set your budget based on your take-home pay, not your actual salary.

Benefits like health insurance, 401(k) contributions, and commuter benefits may also come out of your salary before your paycheck hits. A big note here: If you’re a freelancer or contractor, your clients won’t take taxes out of your income — that’s on you. This means you should put aside enough money per month to meet your tax obligations. Since you’re required to pay taxes quarterly as a freelancer, this is super important! We recommend putting this money in a savings account so that it keeps growing, meaning you have more money for covering your taxes.

9. Learn to invest

A savings account is great for growing your money in the short term, whereas an investment account grows more money in the long run. The company-sponsored retirement plans that often come with your first employee benefits package are an excellent example. Through these accounts, part of your paycheck automatically goes toward investments that grow, and you can cash them out in retirement (or earlier in emergencies). Your employer also handles all the administrative work, which is a fun bonus.

If you’re a freelancer or gig worker, or you’re an unemployed person, you can still easily set up and manage your own account to start investing now. An index fund can also be a good alternative to a retirement plan since it’s low-risk. A financial advisor can help you make the right choice — investments are complicated, and the experts are here to demystify them for you.

10. Stay committed, adjust as needed, and get expert help

As you pay your bills and spend on non-essentials, you might feel like you don’t have much money to go around. This can be frustrating — sometimes, enough so that you throw money management to the wind. We understand that feeling, but never give up on budgeting!

You can always review your spending and earning, then adjust your budget as necessary — there’s no such thing as doing this too often. If you’re struggling to stay consistent and disciplined while following a budget, go ahead and change things up. You’re not alone in this, you know — there are plenty of financial advisors out there eager to help you.

At UBank, we’ve got relationship bankers ready to advise you on savings goals that are right for your specific situation. The right advisor will teach you how to invest while themselves being invested in your success, so they’ll be available whenever you need help. No question is too small or big for a great advisor, who can help you stay committed to your budget. From there, minimal debt and stress-free spending will result — exactly how money should be!

Get help with budgeting right in your backyard

The best financial advice comes from no-nonsense experts who make things easy for you, regularly keep in touch, and fight tirelessly on your behalf. That’s exactly how our relationship bankers operate here at UBank. Visit any of our locations in East Texas or DFW for help setting a budget, opening a savings account, and so much more. And then, whenever you have questions or needs, come back for our help again — it’s what we’re here for.

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