Money Management 101: Tips for Young Adults Entering the Workforce

Money management is a vital skill for achieving financial independence and security - one that many new college grads have not yet been taught. As young as three or four years old, children go off to school to learn everything from reading and math to science and history. While many important subjects are covered in school, finance and money management aren’t typically in the curriculum. In fact, only 21 states require high school students to take a class in personal finance, according to the Council for Economic Education. 

Unfortunately, many of today’s young people don’t understand the fundamentals of financial independence. Even the most basic money management skills of budgeting and saving can seem like foreign concepts to individuals entering the workforce today. Helping your children or grandchildren establish financial independence through healthy money habits is a valuable gift that sets them up for future success. Let’s look at some tips to help your young adults prepare for their financial independence as they enter the workforce:

1. Start Planning Before You Get the Job Offer

The idea of landing your first job should be exciting! Your hourly pay or annual salary can look like you’ll be bringing in a lot of money, but several factors affect how much money actually goes into your bank account. While it’s easy to think about all the things you’ll do with your money once you start bringing home a paycheck, there are several factors you need to consider before you start spending. 

You’ll need to plan for taxes, insurance, transportation, groceries, and rent, among others, before you start spending. Even before you accept a job offer, it’s a good idea to start thinking about where you’ll live, how you’ll get to and from work, and what expenses you’ll have now that you’re on your own. 

Having a clear understanding of how much money you’ll need to make to survive can be incredibly helpful in establishing your financial freedom. You’ll be more prepared, and you’ll be able to negotiate a job offer that ensures your salary can support your financial needs. 

2. Set a Realistic Budget

Setting and sticking to a budget is crucial to your success. Many young adults understand the basics of keeping a budget, but it can be challenging to implement it in your daily life when you first start living independently. Teaching young adults how to manage their income, bills, expenses, and other incidentals is integral to their financial literacy. Even more important is teaching them how to be realistic with their budget. 

To start, it’s crucial to understand how much money you’ll take home after taxes and other financial obligations. Is money withdrawn from your paycheck for insurance or retirement benefits? 

Once you know how much you’ll take home, it’s time to look at your expenses. List out the following:

• Consistent expenses: Some expenses are easy to budget for because they are consistent every month. This includes rent, student loan payments, car payments, and insurance. 
• Variable expenses: Expenses that vary every month need extra consideration. Things like groceries, medical bills, utilities, credit card payments, and gasoline typically fluctuate in costs from one month to the next. The best way to budget for these is to plan and budget for the most they will be in a given month. 

Once you’ve considered your expenses, it’s time to look at your savings goals. How much can you commit to putting aside each month?  Set both short and long-term goals. Savings should include both future goals and emergency funds. When you fulfill your obligations for expenses and savings, you can look at what’s left over and plan for entertainment and fun. 

Keep in mind that you might have a surplus in some months and a deficit in others. This is where sticking to your budget becomes particularly important. If you end up with a surplus, don’t go crazy with what’s left over. Staying on track with your budget will help create a buffer for the months when you are in a deficit. The more realistic your budget, the more likely you will live within your means and find financial success over time. 

3. Take Control of Your Debt

Managing debt is one of the most challenging tasks of taking care of your finances. Money management can feel overwhelming if you graduate with student loan debt or credit card debt. Before making any other significant investments, focus on paying down your debt. Begin by paying off high-interest debt first. The faster you pay off high-interest loans, the more money you’ll save. Aim to pay off the most you can afford every month without compromising your budget. 

4. Participate in Employer-Sponsored Benefits

Before you take a job offer, look into the benefits offered to employees. Many companies provide employees with various employer-sponsored benefits that offer tremendous financial advantages. And, while it may seem less important to start saving for retirement in your late teens or early twenties, getting started early can make a world of difference when you get older. 

For example, if your employer offers a 401(k) plan with matching benefits, it’s important to prioritize investing in the program - even if it’s a small amount each month. Employer contributions essentially represent free money to save for your retirement. The more you contribute to your plan, the more you’ll receive from your employer. Every dollar you and your employer contribute will compound over time, setting you up for your future success.

Get A Head Start on Successful Money Management with Entrust Wealth Partners

We all start somewhere when it comes to our financial independence, but most people do better when they have at least a basic understanding of money management. As a parent or grandparent, you can be a valuable tool for your children’s future success. At Entrust Wealth Partners, we’re here to help you become a valuable resource for your children through all stages of their lives. 

Contact your Entrust Wealth Partners advisor or call us at (860) 838-3730 for additional support with financial literacy or money management tips for you and your family. We’re committed to helping you teach your children the proper steps toward financial independence and are available to answer any questions you have to ensure their success. 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.