Financial Tips for Young Adults

When you begin working full-time after completing school or tertiary education, you could be bringing in significantly more income. The following financial tips for young adults are specifically aimed at people in their late teens and 20s. This is the time to lay the foundations, both financially and professionally, for future financial success. It is important to start planning for financial success as early as possible and not leave it until later in life when other financial commitments arise. You will be well set up financially and professionally if you follow the 9 financial tips for young adults listed below. Note that these tips are not ranked in any order. They are all equally useful. But, the more you can do, the better!

Tip 1: Start planning now

Many young adults spend their extra income on the latest gadgets, cars, expensive clothes, and other items to impress, or keep up with, their friends. Some even go into bad debt to keep up with this image of wealth.

Time is key when it comes to financial success. The earlier you start planning and implementing some of these recommended financial strategies, the sooner you will be able to reach your financial goals.

The following table shows how much you would need to save and invest each month based on starting age to achieve a balance of $1 million and $2 million by age 65. This simplified example assumes a starting amount of zero and an average annual growth of 5% for all savings and investments.

Age to start saving and investing	Amount to set aside each month to reach $1 million by age 65	Amount to set aside each month to reach $2 million by age 65
20	$493	$987
25	$655	$1,310
30	$880	$1,760
35	$1,202	$2,403
40	$1,679	$3,358
45	$2,433	$4,866
50	$3,741	$7,483
55	$6,440	$12,880
60	$14,705	$29,409

The amounts listed in the table above clearly show that the sooner you start saving and investing, the easier it will be to become a millionaire. The longer you leave it, the harder it will be to reach that goal. Doubling the amount you set aside each month will double the amount you will have at the end. This shows the power of time and compounding.

Another way of looking at the power of time and compounding is calculating how much $1 will be worth if it was invested from a particular age to the time you reach age 65. Assuming the same annual growth rate of 5%, the numbers in the following table may surprise you!

Age at beginning of investing $1	Value at age 65
20	$8.99
25	$7.04
30	$5.52
35	$4.32
40	$3.39
45	$2.65
50	$2.08
55	$1.63
60	$1.28

What this means is that for every dollar invested from age 20, it will grow to nine times that much by age 65. But it will only grow by less than half that amount if invested from age 35.

These amounts are based on a constant growth rate of your investment. In reality, growth varies from year to year, but the general takeaway highlights the value of beginning to invest early.

The average growth in the stock market is closer to 9% per year over the long term, so the hypothetical examples above are conservative.

Tip 2: Seek financial help

Seeking financial help from a reputable and qualified (licensed) professional can be a great way to educate yourself for future financial success.

Tax agents can help with minimizing taxes by finding relevant tax deductions based on your job and work-related expenses. Financial advisers can help with budgeting, investing, and forecasting your finances.

In addition to obtaining direct help from financial professionals, you could also seek help from mentors and other people who have achieved financial success. Learn how they achieved financial success and use their ideas and strategies for inspiration.

But beware of individuals who appear to be wealthy and financially successful who are in reality living in massive debt. These people may drive expensive cars, wear expensive clothes and jewelry, and appear charismatic.

Sometimes it is hard to tell who is really wealthy and who isn’t. Follow your instinct if you aren’t sure. Generally, if something seems too good to be true, it usually is.

The take-home message here is to avoid risky investments and bad debt by speaking to trusted financial professionals. Don’t hand over your hard-earned money to someone you barely know – aka the “financial Insta-gurus” who make their money selling their “secrets” to becoming rich!

Tip 3: Invest in yourself

One of the most important lessons in future success is investing in yourself.

This includes educating yourself in a field that you are interested in by attending a tertiary institution, completing an online course, watching online videos, reading books, reading educational material on web sites, or any other resource containing information related to your interests and goals.

In addition to educating yourself in your chosen field, it is important to keep up to date with new developments. It is rare for knowledge in a particular field to remain static.

New ideas and improved processes and procedures are commonplace. By keeping up to date with the latest developments, you’ll be more valuable to your clients, manager, or followers.

This can help you secure a pay increase in your current job, or provide you with entirely new opportunities.

Tip 4: Learn about finance, investing, and money management

Educating yourself and keeping up to date in your field of interest is important. It is also important to educate yourself financially.

Understanding the financial jargon associated with stock market investing, property investing, managing taxes and learning how businesses work will allow you to make smarter decisions when choosing to buy an investment.

As with educating yourself in your field of interest, the same principles apply to financial education. Buy books (or borrow from a local library if available), watch online videos on reputable channels, search for and listen to podcasts, sign up for online courses, follow successful investors and business people, and so on.

Tip 5: Retirement funds – what to look for when choosing a fund

A retirement fund is a tax-effective method of saving money for retirement and is offered in many countries.

Unfortunately, these funds are often overlooked or ignored by many people until they are nearing retirement. Then they are surprised about how much (or, more commonly, how little) their fund balance is when they retire. That’s not what we want!

If your country has retirement funds available to you and allows you to choose a fund provider, your balance at retirement can be increased if you choose a fund wisely and review it from time to time.

To ensure you end up with a reasonable – or better yet, an awesome – fund balance at retirement, consider the following:

• Low fees: many retirement fund providers offer different types of funds for their members to choose from. Fees can be as low as a fraction of a percent per year. These low fees generally apply to market tracking index funds because they require minimal management effort on the part of the retirement fund provider. The performance of these types of funds closely follows the performance of the market index. Higher fees are charged for funds that require more active investment decisions by the fund provider. These can be as high as a few percent of the balance per year.
• Asset classes: include shares, property, fixed interest, bonds, cash, and alternative investments including private equity and infrastructure. Shares, property, and alternative asset classes are generally riskier than fixed interest, bonds, and cash asset classes as they are more volatile. Over the long term, however, they usually increase in value more than the less risky asset classes.
• Investment types: include growth and defensive. Most fund providers offer some combination of higher risk (growth) and lower risk (defensive) asset classes in their fund portfolio options. Growth-based funds include primarily shares and property, with less emphasis on cash and fixed interest investments. These are suited to younger people who have more than a decade or two before retirement to grow their fund and ride out fluctuations in these market segments. Defensive-based funds are weighted more towards cash and fixed interest investments with a smaller proportion in shares and property. These are more suited to people nearing retirement to avoid losing money in their fund due to market downturns, which can take time to recover from.

The United States offers a few retirement fund options that include 401(k)s and Roth IRAs. Employer match schemes involve employers adding extra money to the fund, effectively increasing the amount deposited into the fund each time. Who wouldn’t want free money?

Traditional 401(k)s are paid using pre-tax income, which reduces taxable income and therefore reduces the amount of tax you need to pay. However, tax is applied when withdrawing funds after retirement. Roth IRAs differ in that funds are deposited with after-tax income.

After retirement, tax is only paid on the employer-matched amount (50% of the fund balance if the employer deposits the same amount) at the time of withdrawing from the fund. Is one type of retirement fund better than the other? It depends. If the current tax rate is low, Roth IRAs can be the better choice. If taxes are high, a traditional 401(k) might be better.

Some people have both to take advantage of uncertainties in tax rates 20 or 30 years into the future. They may channel more into one fund than the other based on current tax rates.

An important aspect to consider with payments into retirement funds is whether they are capped, or have an upper limit. In Australia for instance (as of 2023), if more than $27,500 is paid into a superannuation fund during the year by your company or additional payments by yourself (known as concessional contributions), additional tax is payable on the amount over the $27,500 limit.^[1]https://www.nationwidesuper.com.au/superannuation-rates-and-thresholds/

Insurance with retirement funds

Some retirement fund providers include insurance options such as:

• Income protection: provides regular payments for a short period to help meet living expenses in the event of an injury or illness.
• Total and permanent disability insurance: provides a lump sum in the event of an injury where the person is no longer able to return to work.
• Death cover: provides a nominated family member (the beneficiary, often a spouse) with a lump sum in the event of the death of the fund owner. In some cases, a lump sum can be paid to a fund owner who has been diagnosed with a terminal illness.

These insurance options are covered by fees that are paid from the retirement fund, and the amount depends on the level of cover for each.

Some higher-risk occupations may be ineligible for insurance cover. Check with your available fund providers to determine whether this applies to your situation.

There may be many retirement fund providers to choose from in your country, with each offering different investment and insurance options. Choosing the correct options early can make a big difference to the fund balance at retirement. Visit a qualified financial adviser to learn more about which option is best for your situation.

Tip 6: Start investing in shares

Investing in shares is a great way to grow wealth. Despite short-term volatility, over the long term shares grow on average by around 8% annually. That is why it is important to start early to ride out short-term fluctuations and take advantage of long-term compounding and growth. Investing in shares typically involves two main strategies:

• Passive investing. Requires minimal effort and allows you to buy into diversified portfolios with low management fees. This includes index funds, exchange-traded funds (ETFs) and listed investment companies. A good option for beginners.
• Active investing. If you are more adventurous and willing to spend time researching companies, you can buy individual stocks in companies.

Online trading

With the arrival of online trading and mobile apps, share investing has never been easier. These usually allow investors to trade smaller quantities of money with lower brokerage fees.

You can choose from an array of different passive investment fund options (e.g. market tracking index, technology-focused companies, sustainable/ethical companies, dividend-paying companies, large global companies, and emerging markets, to name a few).

They also allow investors to automate transfers to their fund(s) of choice and are a great way for beginners to enter the stock market. Choose an app available in your country. Some examples include (the links below open in a new tab/page):

• Multiple-country products: Plum, Stake, and Wealthsimple
• Australia: Raiz (previously Acorns), Spaceship, and Commsec Pocket.
• Canada: Questrade and Moka (including France)
• India: Zerodha, Upstox, 5Paisa, and IIFL Markets
• United Kingdom: Moneybox and Nutmeg
• United States: Fidelity, TD Ameritrade, Webull, and Robinhood

There are many more online and mobile-based investing products. Most large banks have online share trading accessibility for members. Search for these products in your region and research the various options that they offer before choosing. Look at the investment types, brokerage and management fees, and other options available.

Tip 7: Learn about starting a business

Why not start your own business?

You could start a part-time side hustle in a field you are knowledgeable in and passionate about. Or you could spend more time on creating a business plan and work towards starting and growing a larger company.

Starting a side hustle or company, if successful, can help you reach your financial goals much sooner than working as an employee in a company. Another advantage of owning a company is that companies are taxed at lower rates than individuals.

Starting a side hustle or business isn’t easy. It requires knowledge of starting a business (seek support related to starting a business in your country), hard work, knowledge of the product or service related to the business, and perseverance. According to data from the Bureau of Labor Statistics in the United States, approximately 20% of new businesses fail during the first two years after opening, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more. These statistics haven’t changed much over time, and have been fairly consistent since the 1990s (Investopedia, Top 6 Reasons Why New Businesses Fail).

How do you become that 25%? Learn from others. Work as an employee in a similar or related business to learn how it operates. Read books and search for relevant information online. Understand your competition. Develop better products or services than your competitors. Find more efficient and cheaper manufacturing methods. These can take time, so the sooner you learn and get started the better. If it fails, you can analyse and determine why it may have failed, and try something else next time. Starting early gives you time to make mistakes, learn from them and hone your skills for your next side hustle or business venture. WomenLed.org contains useful articles and resources for educating people about women-led achievements and is dedicated to increasing the number of women-led corporations, organizations, and small businesses.

Tip 8: Consider buying a house to live in

Should you buy a house or apartment to live in or rent? This question is difficult to answer, and different people will have different opinions. Either way, you will need to budget a certain proportion of your income to pay for a mortgage or rental fees. Read this article to learn more about renting versus buying property to live in. It gives some useful advice and scenarios detailing when one option might be better than another depending on your individual financial situation, lifestyle and preferences.

If mortgage interest rates are low, it is a good time to buy. But beware of rising interest rates and make sure you have the option to fix rates from the mortgage provider. Over time, as the house is paid off, it becomes a more valuable asset that can increase in value over the long term. Conversely, if interest rates are high, it might be better to rent and set aside money in a high-interest savings account until interest rates reduce. As always, speak to a reputable and professional financial adviser before committing to a large purchase.

Tip 9: Consider property investment

Learn about property investing and consider buying a property to rent out as another source of income. Or set aside a portion of your existing income to save for an investment property in the future. Many people have succeeded in property investing and can comfortably live off the income from owning several properties. Speak with a qualified financial advisor who specializes in property investing to gain an understanding of the risks and any specific property investing rules in your region. You could even seek employment as a real estate agent. What better way to gain property investing knowledge from the “inside”? You will quickly learn how to find great investment properties at the right price.

Final thoughts

The various financial tips discussed above are aimed at building your wealth over time. Some of the tips can be relatively quick to implement, others can take years, or even decades to realize the gains. Above all, the aim is to reach a point where you are consistently building wealth and receiving more than one stream of income to increase your cash flow. As a result, you will be more financially resilient even if one of those streams reduces or dries up altogether, such as losing your job, a business venture failing, or a decline in the share or property market.

The more streams of diversified income you have and the more knowledge you have in effectively managing your finances in both good and bad times, the better you are able to handle unexpected surprises. And the earlier you start, the sooner you can reach your financial goals. This won’t happen overnight, but with time and persistence, you will realize the importance of starting early. Check out some of the books below for further inspiration.

More resources on financial tips for young adults

The following books provide more detailed information on the topics covered in this article. Feel free to browse through this list and support the site by making a purchase at one of our affiliate partners. Please read our affiliate links disclosure for more information. Note: The links below will open in a new browser tab or window.

Remember to choose your preferred format (paperback, hard cover, digital etc.) before making a purchase!

• The Barefoot Investor: The Only Money Guide You’ll Ever Need by Scott Pape Link*
• The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness by Dave Ramsay Link*
• How Much Money Do I Need to Retire? Uncommon Financial Planning Wisdom for a Stress-Free Retirement by Todd R. Tresidder Link*
• A Beginner’s Guide to the Stock Market by Matthew R. Kratter Link*
• Side Hustle: Build a Side Business and Make Extra Money – Without Quitting Your Day Job by Chris Guillebeau Link*
• Starting a Business QuickStart Guide: The Simplified Beginner’s Guide to Launching a Successful Small Business, Turning Your Vision into Reality, and Achieving Your Entrepreneurial Dream by Ken Colwell Link*
• AUSSIE MARKET MATE: A Step-by-Guide to Buying Your First Home in Australia by Michael Thompson Link*
• How to Buy Your First Home (And How to Sell it Too) by Phil Spencer Link*
• The Book on Rental Property Investing: How to Create Wealth with Intelligent Buy and Hold Real Estate Investing by Brandon Turner Link*

(*) This site contains affiliate links to products. We may receive a commission for purchases made through these links at no extra cost to you. Please read our affiliate links disclosure for more information.