21 Things That Young Adults Absolutely Need to Know About Money

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I teach a three credit course called Personal Finance at Rutgers University. Unfortunately only a small fraction of students at Rutgers and other universities receive any formal education in money management. Below are "cliffs notes" for those who leave school without learning about personal finance.

Budgeting

1. Create a Spending Plan (Budget)

Track your monthly income and expenses and "tweak" the numbers until cash flow is positive (income greater than expenses). Use this Student Budget Calculator from Bankrate to get started.

2. Learn to Use a Checking Account

Compare bank and credit union accounts for students. Reconcile your checkbook register with print or online statements and avoid fees for low balances and out-of-network ATMs.

3. Pay Bills on Time

Use a calendar and/or e-mail or text message alerts to keep on top of bills for car insurance, utilities, credit card balances, etc. Better still, pay bills promptly when they first arrive.

Credit and Debt

4. Don't Borrow What You Can't Repay

Outstanding debt ties up future income, costs money (interest and/or fees), and can cause physical symptoms of stress (anxiety, insomnia, etc.).

5. Double the Minimum

Ideally, plan to pay credit card bills in full. If you can't, pay at least double the minimum amount due to save on interest and cut the repayment time. For example, doubling the minimum payment on a $1,000 balance on an 18% APR credit card will save $399 in interest and four years of payments.

6. Compare Student Loan Debt to Future Earnings

Financial aid counselors recommend not borrowing any more than the expected first year salary for the career that you expect to have after graduation.

7. Know Your Score

Credit scores are based on data found in credit reports. Credit reports are like a "report card" with detailed information about credit use while credit scores are like a "GPA" with a single number between 300 and 850 that tells how you are doing. For a free credit report, see AnnualCreditReport.com.

Saving and Investing

8. Be Future-Minded

Set financial goals with both a dollar amount and time deadline. Then calculate the required savings. For example, to have $1,000 for spring break in 40 weeks requires $25 of weekly savings. Use this financial goal worksheet to "do the math."

9. Pay Yourself First

From every dollar you earn, save at least a dime (10%). Automate your savings through direct deposit, payroll deduction (e.g., 401(k) plan), and automatic transfers from a checking to a savings account.

10. Save Early and Often

Take advantage of the awesome power of compound interest. For every decade that you wait to start saving for a financial goal, the amount you need to save approximately triples. For more information about saving, visit America Saves.

11. Understand the Rule of 72

Divide the expected return on an investment into 72 (e.g., 72 ÷ 8%). The result (e.g., 9) is the number of years that it will take to double a sum of money. To build wealth, you'll need to take some risk and invest in stocks or stock mutual funds. At a 1% rate of return, money will double in 72 years.

12. Learn About Investment Risks

All investments have some type of risk including risk of loss of principal (e.g., stocks) and risk of loss of purchasing power due to inflation (e.g., money market funds). Learn more about investing from the Cooperative Extension basic investing home study course Investing for Your Future.

Insurance

13. Insure Against Large Financial Losses

"Big ticket" risks include medical expenses, loss or destruction of property, disability caused by an accident or illness, and liability for damages to others or to their property.

14. Buy Health Insurance

It's not just a smart financial move, it is required by law. Young adults can stay on their parents' plan until age 26 or they can purchase insurance through an employer or their state's health insurance marketplace. For more information, visit Obamacare Facts.

Spending

15. Determine Needs and Wants

Needs (e.g., food, housing, utilities, and transportation to a job or school) are necessary expenses. Wants are everything else. Set money aside for needs before spending it on wants.

16. Follow the Rule of Three

Compare the features, including price and consumer feedback ratings, of at least three vendors for "big ticket" products and services. To organize the information that you find, try using this comparison shopping worksheet.

17. Step Down to Save

"Stepping down" means getting things that you need or want at a lower price point. For example, buying clothing in good condition at a thrift or consignment shop instead of at a department store.

Other

18. Guard Your Identity

Place documents with sensitive data (e.g., bank and credit card numbers) in a secure location and don't divulge Social Security or credit card numbers except when required by trusted sources.

19. Maintain a Healthy Lifestyle

The greatest wealth is health! Eat healthy meals, be physically active, get adequate sleep, and avoid vices, such as cigarettes and pot, that are expensive and can cause future problems.

20. Build Your Human Capital

Never consider your education finished. To advance in your career, continue to learn skills that employers and/or clients (if self-employed) value and maintain a robust professional network.

21. Keep Learning About Money

Some helpful websites for information about young adult finances include Money Under 30, 20 Something Finance, Cash Course, and, of course, Wise Bread.

Did you learn personal finance in college?

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