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True fact; the earlier in life you start saving and investing, the greater the amount of wealth you will accrue over your lifetime. Sounds like a “Well, duh!” statement, doesn’t it? And yet, far too many young people squander what can be the most greatly amplified period of their earnings, because it was never put to them that way.
Sadly, personal finance advice for young adults, while common in some families, is lacking in far too many others. This leads to young people making the same financial mistakes over and over again. Small wonder then that so many Americans are woefully underprepared for retirement.
Read on to avoid becoming one of them.
Create an Emergency Fund
Before you do anything else with your earnings, build up an emergency fund of at least six months of your monthly expenses. This way, you’ll have something on which to fall back, should your income get interrupted. It will also serve you well should you encounter some sudden expense, as it will save you from having to take on debt to deal with the issue. Look for a high-yield savings account or some other investment vehicle that is stable and readily liquidated.
Harness The Power of Compound Interest
A $1 investment today, compounded at 5% annually over the next 30 years, if left untouched, with nothing else added to it at all will be worth $1,000 in 30 years. Now imagine if it was $10 instead, and you added an additional $10 every week. That would net you $31,933.87, just from putting $10 away every week.
But wait you say, multiplying 40 by 12 is just 480, which when multiplied by 30 is just $14,400. However, when you add the interest you’ll earn to the principal amount over a 30-year period, that $40 per month investment grows in a logarithmic fashion, Even better, the more you put away each month, the larger the nest egg becomes.
Exercise Patience and Restraint
Who doesn’t want a really nice car, a fly pad, and a sleek wardrobe?
I’ll tell you who doesn’t care about those things — genuinely wealthy people. They have nothing to prove because they have more than they need and feel no urgency to impress people with what they have.
So, rather than coming right out of the gate trying to acquire as much “stuff” as you can, take your time, use your money wisely (save and invest) and you’ll eventually have all the toys you want, with far less debt than you would if you indulged your impulses and bought on credit.
Money management testimonials you’ll find at www.FreedomDebtRelief.com will attest to the value of this piece of advice.
Which brings us to—
Avoid Carrying Credit Card Debt
Instant gratification is the lure that has left many a consumer floundering in a sea of debt. Credit cards make it possible to spend money you don’t have. Which might seem like a good idea, until it’s time to pay it back. With interest rates as high as 30%, credit card debt will make the power of compound interest work against you—rather than for you.
Interest charges get added to what you owe every month you carry over a balance on a credit card account, adding interest charges to interest charges. This is why minimum credit card payments are typically so low in relation to the outstanding balance. In many cases, they’re as little as 3.5% of what you owe, while interest is being calculated at 30% of what you owe.
See how quickly that can get away from you?
Paying off a $1,000 credit card bill using a minimum payment of $35 monthly will take 51 months to retire and you’ll hand over an additional $775.79 in interest. Therefore, if you must use a credit card, pay it off in full before the due date to avoid interest charges.
These four pieces of personal finance advice for young adults will put you ahead of the game. But they are just the beginning. You can learn a lot more about this subject at Investopedia.com.
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