Learning to Adult: 7 Practical Steps to Financial Growth for Young Adults

As with any skill, planning and prioritizing can be developed. In this article we will outline some tangible, practical ways that young adults can implement to help develop these skills as they continue to grow into adulthood.

While the phrase YOLO (You Only Live Once) has fallen out of use, the idea hasn’t gone away.  Young adults still maintain this attitude even if they wouldn’t use the term. Many in Generation Z have watched their Millennial peers struggle with college debt, lack of jobs, and skyrocketing housing prices and, as a consequence, have decided to hang up the American Dream. Instead, their mindset has shifted to making the most of their time off, working towards early retirement, and enjoying minimal living.  All of these things let them enjoy their lives in a way that was not thought of by previous generations.  They are prioritizing experiences over things, and personal care over professional accomplishments. Whether or not you view these changes as good or bad, the new generation is doing things differently.  

Human anatomy, however, has not changed.  According to the National Institute of Mental Health, “The brain finishes developing and maturing in the mid-to-late 20s. The part of the brain behind the forehead, called the prefrontal cortex, is one of the last parts to mature. This area is responsible for skills like planning, prioritizing, and making good decisions.”¹ What does this mean for young adults in their 20s?  While our natural brain development plays a role in our abilities, our brains are quite flexible. Young adults are not without hope! As with any skill, planning and prioritizing can be developed. In this article we will outline some tangible, practical ways that young adults can implement to help develop these skills as they continue to grow into adulthood.

Create an emergency fund. 

Emergency funds are savings that are put aside for large, unforeseen bills.  These could be unexpected car trouble, medical emergencies, or home repair. How much should you keep on hand? If you don’t have any savings, start with a smaller goal of $500. Eventually, you want to have 3-6 months of living expenses in savings. Remember, set smaller goals to help you achieve big success.  If you start with 3 months of expenses in mind, you’ll likely feel overwhelmed.  Find a way to break that down into smaller pieces. The daily savings trick is one way to see small changes make a big impact. Each day of the month save that amount of money, for example, April 1st save $1, April 2nd save $2, etc.   At the end of April, you will have saved $465. 

Contribute to an employer retirement plan.

If you have an employer retirement plan this is a great way to start saving for retirement. This can be an especially important strategy if your employer has a matching program. For instance, if your employer will match up to 3% of your salary and you make $40,000 then you are essentially getting $1200 for free. 

Have life insurance to cover liabilities.

Young adults often forget to investigate life insurance options but it can be a wise investment.  Generally, the younger you are, the lower the premiums. If you’re married and/or have children, then the need is even greater.  Dying without life insurance means that someone else will have to bear the cost of a funeral. Also, some life insurance will pay out while you’re alive if you develop major medical issues.

Have a working estate plan.

It’s easy to put off getting a will until you’re older but even when you’re just getting started, you probably have assets that need to be protected. When you die without a will, it can make your loss even more difficult for those who are left to take care of your estate. A will helps those left behind know what assets and liabilities need to be taken care of after you’re gone.  Companies like Trust and Will offer easy and affordable options.      

Live within your means.

Though this may seem like a no brainer, it’s often harder than we think, especially for those just getting out on their own. According to Experian, the average debt for Generation Z in 2023 was $20,305, with $3,262 in credit card debt.² Easy ways to keep your spending down are to learn to cook at home, skip the Starbucks line, and learn to wait a week before buying the things in your Amazon cart.

Save 10% into a high yield savings account.

Saving into a high yield savings account can be a great way to help build the emergency fund we discussed earlier.   Starting with 10% of your income is a great place to start but it might not be feasible for many.  If you can’t spare 10%, try 1% and work on lowering your expenses in order to bump up that percentage every month or every quarter.

Use budgeting software like Monarch or You Need a Budget.

It’s difficult to know how much you’re spending if you aren’t tracking it. Budgeting software like Monarch or You Need a Budget make budgeting much simpler.  You can connect your bank accounts and credit cards to your account, and it will track those payments for you automatically. Though they each cost a small fee, this software can make budgeting less complicated which means you’re more likely to track your spending.  As the saying goes, what gets measured, gets managed. 

With a little intention and practice, everyone can grow their financial skills. To learn how GW Financial, Inc. can help you, schedule a call today.

1. https://www.nimh.nih.gov/health/publications/the-teen-brain-7-things-to-know
2. https://www.experian.com/blogs/ask-experian/research/consumer-debt-study/

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by GW Financial, Inc. to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2023 GW Financial, Inc.