Managing money and budgeting tips for young adults

‍If you’re between 18 and 25 years old, you’re a young adult. As the name suggests, it’s a time when you might be starting to support yourself in new and different ways. It can be daunting, especially when it comes to managing money for young adults and personal finance for teens. Loqbox has your back with some great finance tips for young adults.‍

The truth is, the best financial advisors for young adults are our older selves. If we could go back in time, we’d all have a lot to say to our younger versions. Lots of us have financial regrets we wish we could rectify. But fortunately you don’t need a time machine to get your finances off to the best start.

If you’re a teen or a young adult, mastering budgeting skills, understanding personal finance and developing strong money management habits is not as hard as you might think, and it can totally set you up for success. Do your future self a favour and take a second to get your head around personal finance for young adults.‍

7 money management tips for young adults

Here are some personal finance tips for young adults and strategies to help you navigate the world of finance, build a solid foundation, and achieve your financial goals:

1. Start financial planning while you’re young

It may seem boring now, but financial planning as a young adult is the key to having a successful future with money. 

Start by setting your short-term and long-term goals: what are your priorities? Do you want to save to give your education or career a boost, or do you want to buy a car, perhaps? Think big, you’ve got time on your hands.

Having a clear goal that you really believe in is key. One of the most important aspects of financial success is sticking to your plans. But it’s also the hardest. So staying motivated towards an objective that you really want and starting on the right foot will make your life so much easier down the road.

2. Pay rent and bills

It’s likely at some point as a young adult that you will be venturing into your own accommodation (or parents and guardians might start expecting contributions). This can be a difficult time with new monthly financial obligations, like paying rent and utility bills, especially if you’re earning a low income. But this is a great way to learn about money.

Monthly outgoings like rent, mortgage payments, and bills are likely to be with you throughout your life. Getting used to budgeting for them early can help you out in the long run. Even if you don’t have your own place yet, you can start to make contributions to your living situation — like agreeing an affordable rent with your parents or guardians. 

Being named on your household bills can help to build your credit history (even if it’s just your phone contract), which will be great news in the future when you want to start taking out credit agreements, for loans or mortgages. 

Rent is a little trickier for this, as it’s not automatically added to your credit report. But you can use Loqbox to add those payments to your credit history (even if you pay it to a friend).

Important note here: It’s easy to fall behind with these sorts of financial obligations when you first start paying them. But mistakes at this stage can have a negative impact on your finances and your credit score. Just one missed payment can stay on your credit report for six years and negatively impact your credit score. Getting into the swing of being financially responsible now (paying on time, every time) will instill great financial habits for your future. 

3. Develop your budgeting skills

Budgets are simple but amazing tools for managing your money. They sound super boring (we know), but actually they’re really easy to set up and they'll give you a great idea of what’s working, and what’s not, with your finances. There are lots of budgeting ideas for young adults, but we’ll focus on a really quick and popular one here.

The 50-20-30 budget breaks your post-tax income into percentage chunks. Let’s say you earn £1,000 a month after deductions. 50%, or £500, is for the things you need, like your rent, bills and groceries. 20% ( £200) is to put towards your financial goals. That leaves you with 30% (£300) for the things you want, like clothes, nights out and entertainment.

The great thing with the 50/20/30 rule is that you get a realistic and easy way to understand your money. And because it’s percentages, it keeps making sense as your income increases. It also means you can treat yourself without feeling guilty or worried that you’ve spent too much money. Now you just need to decide what to do with the 20%.

4. Saving methods for young adults

Once you know how much money you have for your financial goals (the 20% chunk of your income in the above budgeting rule), the next step is to decide how you want to use it to invest in your future. There are lots of things you could do: save, build an emergency fund, invest, or pay off your debts. But how do you decide?

As a young adult you might not have debts, but if you do it’s a good idea to pay them off before you do anything else. Remember, the interest you pay on your debts is likely to be far more than any interest you’ll make on your savings. So clearing your debts will give you more money to play with and boost your saving power.

Once you’ve cleared your debts, the next thing you should consider is building an emergency fund. This is a pot of money that’s about three to six months’ worth of your income. Life has a habit of throwing curveballs, your emergency fund is there to see you through any unexpected surprises.

After your finances are balanced and you’ve got a safety net if things go sideways, you can look at saving for a large purchase. This could be a deposit for a house, or for a year traveling the world. Alternatively, you could decide to put your 20% chunk into some sort of investment, like stocks and shares. (It’s best to get expert advice before you start down this route - investments can come with their own risks.)

Pro tip: automate your savings payments into a separate account on payday, if you are earning a wage. That way you don’t even see your money shifting over and you remove the temptation to spend it on something else. As a young adult or teen you have time on your side. Even if you only save a little each month, if you stick with it you’ll be amazed at what you can achieve.‍

5. Check your eligibility for benefits

When you’re a young adult or teen, you might be eligible for different benefits to the ones older adults get. Check out your eligibility here. You could be eligible for Universal Credit, or specific help with childcare if you’re a young parent. These benefits aren’t always obvious, but are there to help you.‍

6. Improve your financial literacy

Financial literacy is about understanding financial products, processes and services so that you can make good decisions when it comes to managing your money. There are lots of financial products and services out there, and while they can be really useful, there are also traps that we can fall into when we misuse them.

Loqbox Coach offers a free financial plan, available on the Lite or Full Loqbox membership plans. If you’re keen to learn about how the financial system works, want guidance on money management and would like to enjoy a happier, healthier relationship with money, you can make a start there. 

Improving your financial literacy will put you in a good position to not only avoid those pitfalls, but also work the system to your advantage. This can not only save you money, but it could also earn you money if you know what you’re doing. So, while it may seem exciting to learn about finances, it definitely can pay off.

A good place to start is with your payslip. If you’re in your first job, are you definitely earning minimum wage? Do you understand the deductions from your payslip, like tax and National Insurance? Also are you paying into a pension? That’s really important. It’s likely an automatic payment, but find out what the contributions are and where they are going.

Stay updated on personal finance concepts and trends. Read books, follow reputable financial blogs, especially ones that cater to young adults. Expand your knowledge of investment options, retirement planning, and building wealth. Remember, financial education is a lifelong process, and staying informed will help you make smarter financial decisions. 

7. Start growing your credit score.

Your credit score is a numerical value that lets you know how creditworthy lenders consider you to be. When you apply for a credit card, try to get a mortgage, take out a personal loan, or even just start a mobile phone contract, the providers of the service will do a credit check on you. This is where they look at your credit history. 

When you use credit, your activity (good and bad) is reported to the top three credit reference agencies in the UK: Experian, Equifax, and TransUnion. You can read more about the credit reference agencies, what they are and what the difference between them is, here. They each hold a version of your credit report and use it to generate your three respective credit scores.

Generally, the higher your credit score the more likely you are to be accepted for credit, and the better the deals you’ll get. When it comes to mortgages, for example, getting better interest rates can save you literally £1,000s in the long term. So it’s important to have the best credit score you can get, but if it’s not where you want it, don’t worry.

You can help improve your credit score by starting with Loqbox and getting access to our tools for just £2.99 a week. You could see your credit score grow by up to 200 points in the first 12 months.

Improvements to your credit score are not guaranteed.