Maximizing Finances as a Young Adult

business, people and money concept - smiling businesswoman with dollar cash money over gray background and forex graph going upBy Jenna Batten

Special to the Financial Independence Hub

For young people seeking to become financially independent, one of the most important underlying principles of frugality is making the most of your existing assets. Put simply, this means learning how to spend only what you must, how to invest strategically, and how and when to save.

Here are a few tips on how to address each of these points:

Spend Wisely

Being frugal with your money is always a good idea, and for some it’s a fairly basic practice: you spend only what you need, when you need to, without gratuitous or unnecessary expenses. However, even those who believe themselves to be strategically frugal with their finances may be surprised to see how many costs they can cut if they really sit down and analyze the situation.

Thankfully, doing so has become easier than ever before thanks to, you guessed it, an app—or rather a whole slew of apps, designed to assist in financial tracking. You can read about a number of these apps at Daily Worth, although the most popular options are Mint and GoodBudget. Both tools help to provide you with a comprehensive, visual display of what you spend and what your overall financial situation looks like.

With these sorts of tool handy, or simply with a detailed financial tracking system of your own, you can effectively create a budget based on your own financial situation and your particular habits. You can then adjust your spending habits wherever possible to ensure that you’re spending no more than you really need to.

Invest Strategically

For many young people attempting to secure financial independence, investing may seem  like a difficult task—and generally, it is! However, just because investments are usually most effective when gone about with significant assets at play doesn’t mean young professionals can’t make strategic investments in certain markets or with certain resources.

I wouldn’t recommend anyone dive into any particular investment without a good understanding of the market, but sometimes alternative options, such as precious metals or commodities, can appeal to young people. In the most general sense, these alternative investments are sometimes thought of as secure for the long term with relatively low risk, at least for significant financial loss. Gains may not be as lucrative, but the idea is to secure your finances with a relatively stable investment, and to learn about investing in the process.

Considering these factors, gold is a resource that comes to mind, and the price tracking charts at FXCM show that the metal appears to have stabilized somewhat after a weak 2014 and an up-and-down start to 2015. That’s not to say it should necessarily be viewed as safe or strategic moving forward, but it’s one to consider for those looking for long-term investments for the protection of small amounts of capital.

Save Appropriately

Balancing finances is tricky enough without figuring out how and when to set aside savings. And yet, this is a particularly important aspect of gaining financial independence, because it allows you to effectively “insure” yourself against unforeseen expenses. Without savings on hand, your future is vulnerable to sudden problems that can leave you in debt or in a difficult situation; with savings on hand, you can trust that you’re in a stronger financial situation.

The real trick is deciding where setting aside savings falls on your list of financial priorities. For example, if you have a given amount of money to set aside, is it a better idea to use it to pay debts, or to start amassing savings?]

Emergency Fund

Time Magazine posted an interesting discussion on this sort of debate that can help you to gain some perspective on how to allocate discretionary funds. The basic summary of the article’s argument is that at least a small emergency fund should be a priority, because you never know when a pressing need for money will arise. However, beyond a basic emergency (or “rainy day”) fund, it may be most strategic to forego savings in favor of eliminating debts. That’s particularly true if interest rates on your debts are such that they’re costing you more over time.

Ultimately, each individual situation calls for its own specific financial plan, and gaining financial independence can take years of hard and diligent work. You can at least put yourself in a position to begin the process, though, by strategizing savings and investments and keeping track of your income and expenses!

IMG_20150826_101131Jenna Batten is a freelance writer based out of New York. Although she covers a wide range of topics, including career and education advice, her main focus is finance, with a focus on helping young adults boost their levels of financial literacy. 

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