The Ultimate Checklist for Young Adults to Achieve Financial Success

High school and college students should be on the road to financial success by learning some basics and following some guiding principles. This ultimate checklist will guide them on their way. And most importantly, time is on their side.

“Young people have perhaps the biggest advantage compared to other investors: time. The earlier you learn and apply key financial skills, the greater your rewards will be over the long term,” says Phillip Durbin, a financial planner with Generational Wealth Development.

Financial Checklist for Young People

Young people can build financial success by following the tips on this checklist:

Learn How to Budget

Getting a handle on the money coming in and going out each month is the first step to building a solid financial foundation. So, tally up all bills and expenses as well as income each month and build a budget. Make note of monthly bills and monthly income. How much money is left over after paying bills? Rather than spending it all, this is a great opportunity to begin saving.

Understand Wants vs. Needs

As you build your budget, consider the difference between needs and wants. There are many ways people want to spend their money, but not all of them are essential—these are needs. Take care of needs first and then consider what wants will fit into the budget.

“Prioritize spending on things you need (housing, food, gas) before things you want (new phone, concert tickets, gas station junk). Budget for some fun, but learn to say no,” Durbin says.

Time to Start Saving

“The sooner you learn to budget for your life, the better off you’ll be. Once you control where your money is going, you can start controlling how much you save,” Durbin says. “Pay yourself first by saving a portion of any money you earn or receive before spending it.”

One way to achieve that is to set up automatic savings into a high-yield savings account or a brokerage account.

Learn the Power of Compound Interest

Depending on the account you put your savings into, it’s important to ensure you understand how that money grows. When interest gets applied not only to the principal amount you invest in an account but also to the interest accumulated previously, this is compound interest. And it’s a sort of superpower, particularly when you’re young.

“Take advantage of compound interest by contributing to a 401(k) or Roth IRA as soon as possible. Even small contributions in your 20s can grow significantly over time,” says Daniel Milks, a certified financial planner and founder of the Fiduciary Organization.

Build an Emergency Fund

Not everything that happens to you will fall into a neat budgeting bucket. An unexpected expense, such as a big car repair or getting laid off from a job, can happen to anyone. Be prepared by building a savings cushion to cover these expenses.

“Aim to save three to six months’ expenses in a high-yield savings account. This provides a financial cushion for unexpected expenses like medical bills or job loss,” Milks says.

Use Credit Wisely

Be smart about your credit. Your bank will likely make it easy to set up automatic bill pay to ensure your credit card bills (and other recurring bills) get paid on time. Keep your credit card balances low. And only borrow money for essentials you need. These can help you create a credit history. And a good credit rating can go a long way as you map out your future.

“Build a strong credit history by paying bills on time, keeping credit utilization low, and avoiding unnecessary debt. Good credit helps with securing loans, renting apartments, and even job applications,” Milks says.

Don’t Be Afraid of the Stock Market

Investing early and often when you are a young person is one of the best financial moves you can make. Time and the power of compound interest are on your side. So don’t hesitate to begin investing.

“The stock market can be this big, scary beast, but it doesn’t have to be. You have the biggest advantage of anyone: time,” Durbin says. “Spend the time learning about it now, so it can benefit you for the rest of your life. This knowledge could save you millions of dollars over your lifetime; isn’t that worth the time to learn it now?”

To start, you’ll need to educate yourself about investing. Then, set up your investment goals before selecting your specific investments. Finally, select the right brokerage account for you.

The Bottom Line

These financial tips will set young people on the path to a bright financial future. All are important, so make sure to incorporate all the tips as you build your financial life. Budget, be smart with your credit, save for a rainy day (because they happen to all of us), and understand the difference between a want and a need. The biggest takeaways are the importance of investing and understanding the power of compounding interest.

You can build a lifetime’s worth of wealth by starting to invest in your 20s. So don’t be frightened by the stock market and instead invest in your financial future.