If you’re a young adult, you have a lot going on in your life. You may be entering the world of investing, working to build a strong relationship, or creating multiple income streams to meet your financial goals. Before you know it, you may lose track of your finances and start to wonder why you don’t have any money in the bank or be blindsided when tax season rolls around. I talk to a lot of young adults who just want to figure out how to get organized and back on track. Fortunately, there’s some simple advice I can give that will get you pointed in the right direction.
1. Understand What You Have
It might sound simplistic, but figuring out exactly what you have is the first step in getting your finances on track. When you start getting busy – especially if you have income from numerous sources or are an entrepreneur – it’s easy to take your eye off your finances and start mashing them all together and figure that if you’ve got money in the bank, you’re good to go. Those who do this usually don’t have the time, interest, or understanding of their money to do anything about it. Luckily, you can make time to work on your finances and you can hire professionals who have the interest to understand it for you.
But let’s get back to the basics. You should have one bank account for personal expenditures and one for business if you’re an entrepreneur. If you have a salaried position and no side income, you can usually get away with just one bank account. Then you need to write down all your debt, monthly payments, and any retirement or investment accounts you have in place already. This will give you a big picture of your finances and provides a starting point for getting organized.
2. Figure Out Where You Earn and Spend
Now that you see where your money is (and how much of it you’ve got), the next step is to figure out where you earn your money and where you spend it. Another word for that? Budgeting. You can budget yourself by using spreadsheets or a simple paper and pen, or you can use one of the hundreds of budgeting apps available today (my personal favorite is You Need a Budget--YNAB.)
For this step, total up all your sources of income on a monthly basis. Then start figuring out where that money goes. Many young people are surprised when they see how much money goes out of the window for seemingly small things like going out to lunch or getting coffee in the morning. Once you have a good handle on where you earn and where you spend, you can start to make adjustments to increase savings and put your money into areas where it makes the biggest impact on your happiness.
3. Plan for Taxes
Taxes can eat up your funds in a big way – especially if you aren’t properly prepared for them. If you’re on the payroll for the company you work for, you may misjudge how much will be taken out each month and end up not taking home what you thought you would or taking home too much and getting penalized at the end of the year. If you’re an entrepreneur, you can easily lose track of how much you owe in taxes and be in a crisis situation when the bill comes due. I always encourage young adults in either situation to work with a CPA to help them understand and properly plan for taxes. I also advise them to have some sort of system to maintain records throughout the year, even if that system is throwing all your receipts into a drawer or folder.
One of the best pieces of advice I’ve ever gotten – and that I can relate to almost anything – is to grow where you’re planted. In other words, if you’re overwhelmed by something, simply start where you currently are and go from there. When you look at your finances this way, you can take the stress out of the situation and take small steps to get to your goals.
Have questions or comments about getting your finances on track? Please leave them below!