Managing Your Finances as a Young Adult

Written by Tori Dunlap of Her First $100k

Whether you’re a fresh out of high school or a college grad, the next chapter might feel like the looming shadow in your room–– is it friend or foe? It’s normal to feel overwhelmed by all of the new rules you’re learning firsthand. Sure, you always knew you’d have to pay rent someday or take out a car loan, but actually doing it? That’s anxiety-inducing stuff. 

Fortunately, there’s a roadmap to follow for young adult finances, and the better news is that it doesn’t all have to be done at once. In fact, getting your financial life together as a young adult is going to take time. You’ll likely try something and either fail or love it. Trial and error is the name of the game with your personal finances.

Here’s the deal –– getting over your financial fears isn’t easy, but it is one of the best things you can do for yourself as a young adult. When it comes to money, time is your biggest asset. The more you can do to set yourself up now, the easier it will be in the long run.

^{Tori Dunlap of Her First $100K} 

Recognize your money beliefs

Your beliefs around money are cemented by age 7. By the time you’re learning basic multiplication, your view on money is solidified. Take into consideration what the conversations around money were like in your childhood. Was money a source of stress? Was money considered evil? Was there never enough money? Were you told to save, save, save or spend, spend, spend?

Our childhood messages around money aren’t always bad –– heck, they can even be really great! Either way, it’s important to tap into what kind of money beliefs you were raised with.

When first working with someone to work through their money story, I take them through a journaling exercise that helps them work through the subliminal messages they received about money growing up. The prompt begins with writing about the first time you remember hearing or thinking about money.

Mine was a memory of seeing Annie at a local community theatre. I tell the whole story on the podcast, but a quick version is that I saved up all of my money for a ticket in an Altoids tin that I accidentally left at home when it came time to see the production.

Of course, my parents being the wonderful people they are, paid for my ticket (and truth be told, I didn’t even have enough saved), but the memory stuck. If you want something –– you have to save for it. 

Overwhelmingly I find that most people don’t have positive memories, and this exercise can be difficult –– nonetheless, they almost always come back to me within a few days, having noticed where their early money beliefs are affecting their financial lives today. 

So, step one in managing your finances is to sit down and journal out that first money memory. What beliefs did it instill in you about money? How do those beliefs affect your day-to-day spending? How can you counter this belief if it’s negatively impacting you?

Take your time, tune in next time you’re out shopping or faced with an unexpected bill –– what feelings come up? And how can you work through them?

For those of you who don’t have a positive money memory, this exercise may be challenging the first time through, but it’s also incredibly cathartic. Working through your beliefs and emotions about money helps you see yourself and your spending through a new lens. It’s important to give yourself the space you need to really dive into what makes you tick, and you’ll be amazed at how much more confidence you’ll have while setting your financial goals.

Create a budget that works for you

Budgeting is a pain, no matter how you look at it. Even if you live for spreadsheets, budgeting takes time, effort, and energy. It’s especially important, however, because a good budget sets healthy boundaries around your spending and helps you cultivate the kind of life you want.

I personally love using the 50/30/20 method, a popular technique where you break your budget into three categories –– 50% goes to needs (think: food, water, shelter), 30% goes to wants (fun things like travel, dining out, and hobbies), and 20% goes to savings and debt. These numbers won’t always work out exactly, especially if you have higher debt. If this is the case, as you begin paying debts, saving more, and adjusting your income, you’ll be able to work your way closer to a balanced budget!

I am also a staunch believer that just because you have debt, it doesn’t mean you can’t spend money on things that make you happy –– you just have to decide what those things are and not spend on things that don’t. I do this with values-based spending. In values-based spending, you choose three categories that are meaningful to you. For example, my three are dining out, traveling, and nesting. That 30% of my budget is dedicated to these values, so I get to enjoy life and still set healthy boundaries on my spending. 

Make your bank accounts work for you

At some point, likely in high school, you might have been dragged to your local bank branch to open a checking account. You may have opened this account out of obligation instead of a strategic purpose. And when it comes to bank accounts, strategy is important. It’s pretty common for younger people to only have a checking account that might be linked to a savings account –– but as you get older and start making more, expanding your accounts may be beneficial.

When it comes to opening your first personal accounts, you can look at each account like a special container for your funds –– each with a different role. A checking account is going to keep all of your readily available funds. These funds should cover your month-to-month expenses and bills with a little leftover, so you’re not in overdraft territory. A savings account is where you’ll keep rainy day funds like your 3-6 month emergency fund and short-term savings goals. 

Your savings should also be accessible, especially if it houses your emergency fund, but keeping it out of your regular checking account makes it less likely you’ll dip into it for non-emergency spending. I personally keep my savings in a separate bank, just to make it one extra step when I need to transfer funds! 

This is also a great time to start strategically building credit –– and by that, I mean getting a student or beginner-friendly credit card, using it for a few small purchases, and paying off the total every single month. Contrary to popular belief, you do not have to go into debt to build a credit score.

Investing

As a final note, so many young adults think that investing is something you only do once you have amassed wealth –– but investing is something you start young so you can accumulate wealth. Investing is not as scary as you might think, and a great place to start is by opening a tax-advantaged account like an IRA or taking advantage of your company 401K. Despite what many think, you don’t need a lot to start investing –– if you find as little as $50 a month out of your budget, your 59 ½-year-old self WILL thank you for it. Compound interest is a magical thing! 

Young adulthood is an exciting but often trying time –– getting your finances “right” now can set you up for the life you want.