It's amazing how many people go into adulthood without an idea of why personal finance is important, or knowledge of even the basics of finance.
How much we earn is just one part of our finances, and the ability to master your money extends far beyond just getting that long-awaited pay raise. The ability to invest, manage debt, and budget can all play a huge part in financial success.
In this guide, we will explore some of the top tips on how to be financially successful and maximize your financial situation, as well as understand some basic finance concepts.
Of course, we understand that everybody’s financial situation is different, and not all of us have the luxuries that some others do, such as creating an emergency fund that can help if you are in a tight spot. However, everybody needs to learn valuable lessons about money to avoid getting into debt and avoid financial pitfalls.
The Importance of Educating Yourself on Personal Finance
Some simple sums can really outline how to be financially successful and make the right decisions when it comes to personal finance.
Let’s say somebody makes a commitment to live within their means and put $200 into a savings account every month with a 5% interest rate. By the end of 20 years, that saving will have reached an impressive $82,206.73
If the same person invests $200 a month and is able to get a yield of 8% each year, the money would be worth $117,804.08 with interest earned topping $69,804.08.
“Compound Interest is The Most Powerful Force in The Universe.”
Albert Einstein
On the other hand, someone who gets themselves $200 further in debt each month could find themselves in serious trouble. In the grand scheme of things, $200 monthly may not seem like a lot of money, it is less than $10 per day, but on a long timeline, it can make a huge difference to your financial situation. These are the sorts of lessons you will likely learn when you work with finance tutors to try and improve your situation, but there are plenty of other personal finance tips that we will explore below.
Personal Finance Tips and Advice
Ensuring that you have savings rather than debts is one of the most important money lessons to learn. On a day-to-day basis though, this is not necessarily one of the most actionable personal financial tips for young adults. Let’s delve into some practical tips.
Preparing a Budget
You could’ve guessed this would be on the list, right?
Budgeting is your number one tool. Glamorous? No. Effective? Absolutely.
In the modern age, budgeting has also become a whole lot easier with apps, and some online banking accounts even provide their own suite of budgeting tools. Work out how much your income is each month, how much you need to spend on essentials, and how much you want to put aside as savings (if possible). Anything left can make up a part of your budget, which you may need to include food and drink for the month.
Splitting your budget into different areas may be one of the best options for ensuring you strike a balance and can buy things you want, without going overboard. As well as things like food, drink, and gas for the car, you can use budgeting for your non-essential items while still making smart financial choices. For instance, if you love books, you can set yourself a monthly manageable budget for buying books.
Control Impulses and Cut Your Spending Where Possible
Not everybody is an “impulse” purchaser. If you are, though, it is really important to notice this behavior and try to control it as quickly as you can. Trying to embrace a mindset of delayed gratification can lead to long-term financial success.
Patience and discipline in saving and investing, rather than succumbing to impulsive spending, contribute to the accumulation of wealth over time. Again, we’re thinking about the long-term here. Let’s say you impulsively buy an item of clothing once a week that costs $20. Over the course of the year, that’s over $1,000 that you’ve spent.
Understanding the value of long-term goals and resisting the temptation of immediate rewards fosters a financially secure future.
Frugality and cutting expenses may not sound like fun, but it can certainly be a way to put yourself in a better financial position.
A great example used during a personal finance class is often the daily cup of coffee. Sure, you might want a barista-made coffee every day, but should it be a priority? A signature coffee can cost around $5 now, and if you do that five days a week, you’re suddenly spending thousands of dollars annually on coffee. What really stings is that you can potentially invest in a tumbler and some decent quality coffee you can brew at home and save a lot of money.
It’s the sort of advice your mom would give you, but moms are wise!
Renegotiate Contracts and Monthly Expenses
Many companies that you have ongoing contracts with will creep their prices up over time, or simply neglect to tell you about deals and promotions that you may be entitled to.
It is a good idea to periodically review subscriptions, for instance. Not only should you evaluate whether or not you need them, but you should also be exploring whether the contracts are a reasonable price. Call the companies when it is time to renew and try to get a better deal.
Prioritize High-Interest Debts
Reducing and managing debt is an integral part of achieving financial stability, but some debt is more damaging than other debt. Prioritizing high-interest debts and creating a repayment plan can save money on interest payments and expedite the journey to debt freedom.
For instance, if you’ve got credit card debt, it is usually better to pay this off quickly as the interest rates are high. This is better than overpaying on long-term loans, for instance, which shouldn’t be seen as quite as urgent.
Moreover, maintaining a good credit score by making timely payments and managing credit responsibly opens up opportunities for better interest rates on loans and credit cards.
Create an Emergency Fund
Another key aspect of financial success is building an emergency fund. We know that this is a luxury for a lot of people.
Setting aside three to six months' worth of living expenses can provide a financial safety net in case of unexpected events, such as job loss or medical emergencies. This fund offers peace of mind and helps avoid accumulating debt during challenging times. If you’re suddenly hit with an unexpected cost such as a car repair or home repair, you won’t have to resort to borrowing money and paying the interest on this.
Determine Your “Wants” and Your “Needs”
This is one from a lot of personal finance coaching videos and books. One route to making the correct decisions is to determine the difference between something you want and something you need.
Needs include: Housing, transport, insurance, health treatments, electricity, food.
Wants include: Designer clothing, entertainment, gym memberships, travel, meals out.
Of course, it is no fun always depriving ourselves of things we want, and that is not the goal. The main goal is to establish which items are non-negotiables, such as heating your home and eating every day, versus things that could be ditched such as concerts and expensive meals at restaurants.
Consider enrolling in financial online classes to deepen your knowledge of financial concepts, develop effective money management strategies, and learn about investing and financial planning. These classes will provide you with the skills and confidence needed to make sound financial decisions and secure your financial future.
Enhance Your Personal Finance Knowledge with Books and Financial Influencers
It can be tough to work out how to learn about finance and discover the best financial tips. There are many online finance gurus, some of whom have published books about personal finances where they cover the important financial topics.
Tiffany Aliche has over 600,000 followers on Instagram and creates amazing, actionable personal finance tips and covers finance basics such as budgeting. She published "Get Good with Money: Ten Simple Steps to Becoming Financially Whole" in 2021.
She’s known online as “Budgetnista” and is worth following. Her book has short-term actions that can help you with finances in the long-term, and unlike some so-called gurus, her tips are actionable.
Another personal finance guru to follow is Humphrey Yang, who provides loads of personal finance content and has amassed over 50 million viewers on YouTube, advising on whether to use Credit Cards, how to get the best deals, and more.
Humphrey's personal finance videos are viewed all over the world, and he also has a huge following on his own personal site.
Learn Personal Finance with the Help of a Tutor
Choosing to contact finance tutors online, can provide you with specific advice for your situation and go through all aspects of personal finance for beginners.
Whether you want individualized lessons or group finance classes near me, finding the right tutor either online or in-person can allow you to learn the basic principles of finances and how to do more with your money.
Superprof can connect you with online finance tutors who you can check in with. Many of them will help you to create your monthly budgets and make better decisions. It can be worth the investment when it comes to learning how to manage personal finance. Find your perfect tutor and start budgeting today!
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