Did you know most states don’t require high school students to take a personal finance course to learn how to manage their money?
It’s no surprise adults make financial mistakes – there was never a foundation to begin with. Instead, adults figure it out as they go, for better or worse.
The results aren’t always disastrous, but everyone can agree that there’s something they wish they’d known sooner.
Here are five finance tips adults wish they learned when they were growing up.
5 finance tips every adult should know
In an ideal world, kids would finish high school with a clear concept of finance and money management – and continue learning well into college. That way, when they get their first job, they’d know exactly how to manage their money and plan for the future.
That said, it’s never too late to learn. The sooner you start, the better!
1. Learn the ins and outs of finance language
What’s a mortgage? An APR? How does a credit card work? How do I start investing? What’s on my credit report?
Many adults don’t learn the answers to these questions until they’re directly confronted with them. That is, they learn as they go – and often when they’re in a stressful situation.
Now we’re not suggesting it’s fun to spend an evening learning the definitions of financial terms. But before you engage with a new product, take time to understand it. For example, read everything you can find about bank account, mortgages, and financial products as you need them. It’s certainly easier to learn when you’re interested and relaxed than to find out you’re paying way too much interest or getting a bad deal after the fact. We’ve all been there. Taking the time to learn can save you from stressing later.
2. Start saving as soon as you can
A penny saved is a penny earned. It’s not just an old cliché – it’s true. And the sooner you start saving, the more you’ll have down the road.
Even if you save $5 a week, that’s $260 a year. And after five years, you’d have $1,300!
It can feel a bit silly in the moment to save a small amount, but it really does add up over time. Instead of imagining how much you’d have now if you started saving earlier, you can get started today. Open an account and learn how to add money to it. Small steps lead to big results!
3. Learn how to invest
Everyone should have cash savings on hand in case of an unexpected expense, like a leak in the bathroom or a flat tire. After you build your savings, put your money to work by investing it!
There are many ways to invest your money and lots of different accounts to choose from, including an IRA, brokerage, HSA, and more. For most folks, the best choice is an IRA retirement account, which comes in a traditional or Roth setup.
While retirement may not be on your mind right now, time is on your side if you start early because it has more time to grow.
When you’re ready to set aside funds to invest, learn how to select the right fund in the best account for you. This is a huge topic to uncover, so reach out to a professional if you need some guidance.
4. Diversify your income
Is the only money you receive from your main job? That’s the financial equivalent of having all your eggs in one basket. Ideally, you’d have multiple income streams.
One extra way to make cash is to have a side gig, like driving for Uber or selling your crafts on Etsy. But that’s not all – check out our Income Helper for 90+ ways to make extra cash on the side.
Remember, investments you make can earn money passively. That is to say, once you invest, all you have to do is sit back and let the returns roll in. Getting to a place where you can earn passive income is a huge step forward financially. But you can start now by making more cash on the side and getting caught up on your bills and savings.
5. Build and maintain your credit score
As an adult, you come to realize a lot of your financial options are based on a single number: your credit score. Any time you seek credit, apply for a loan (including a car loan or mortgage), or in some cases open a utility account (like for electricity or cable), the creditor or merchant will ask for permission to pull your credit score.
If that number is too low, you’ll either get a denial or have to make up for it by paying high interest rates with worse terms than if your credit score was higher.
So what can you do to boost your credit score? Start my making sure you make every payment on time. That includes everything from your rent to your water bill to overdue books at the library (seriously!). Most agreements have a provision that allow companies to turn you over to a collection agency if you don’t make payments. From there, the information shows up on your credit report – and it can take years for your score to recover.
Another great step is to open a credit card with a low limit, use it sparingly, and pay it off on time. The longer you have a credit instrument, the more history you’ll have – and the better your credit score will be.
Finally, don’t apply for credit too often. Because each time you apply, your score temporarily drops for a few months. If you apply several times in short time period, that can have consequences for your credit score.
The good news is that your score recovers soon after a credit inquiry. But only seek credit when you need it to make sure your score stays high.
Learning how to manage your finances is a lifelong journey. But there are a few finance tips you can use to start taking control now, including:
- Do your research on every financial product you encounter so you understand exactly what mean
- Save as much as you can – the sooner, the better
- Consider opening an investment account so your money can work even harder for you
- Seek out multiple income streams to give yourself a safety net
- Build and keep a good credit score – it will serve you well throughout your financial journey