Money Management 101: Tips for Your Kids Entering the Workforce
By The CFP® Team at Washington Wealth Advisors
If your kids are starting to enter the workforce, it’s essential they build healthy financial habits. Here are the five most important things to teach young adults about money management when they start working.
1. Be Realistic About Budgeting
The first key to money management is budgeting. It’s hard to know exactly how difficult it can be to stick to a budget until you’re living on your own with bills, expenses and other incidentals to pay. It helps to be realistic, by considering the following:
- What expenses are consistent every month (e.g., rent, student loan payment, car insurance)?
- What expenses vary every month (e.g., utilities, groceries, medical bills)?
- For the expenses that vary, what is the most they anticipate paying in a given month?
- How much do they have left over after taking care of necessary expenses? And how does that compare to what they would like to spend on entertainment and other luxury expenses?
- What are their savings goals and how much can they actually commit to putting aside every month versus spending on fun stuff?
Remember: It’s always better to stay under budget and have funds left over at the end of the month rather than end in a deficit. So, being honest about how much they might spend on things like dining out or buying concert tickets is key to sticking to a realistic and reasonable budget.
2. Pay Down High-Interest Debt First
It’s likely that your students will be entering the workforce with student loans to pay off. Before tackling any ambitious investing or savings goals, they should realize the value of paying off high-interest debt first. Splitting extra income between paying off debt and saving for a long-term goal allows them to feel they are making progress on both.
3. Set Short-Term and Long-Term Savings Goals
Putting money aside in a savings account is a good starting point, but setting clear and measurable financial goals can make a big difference in your children’s money management skills.
Start off by having them set a goal for a year from now. Is there a specific trip they want to take? Or an item they’d like to buy? It could be as simple as wanting to fund a camping trip or as lofty as wanting to buy a new car. Those short-term financial goals are best suited for regular savings accounts.
Ask your kids to consider long-term savings goals—where would they like to be in 10, 20 or 30 years? Do they eventually want to move to a different city, buy a house or have children of their own?
Even if your kids don’t have a clear picture in their heads, it’s a good idea to get them thinking about the value of saving and investing for long-term goals early.
4. Take Advantage of Employer-Sponsored Benefits
If young adults are starting in the workforce with a full-time job, their employer may offer valuable benefits. It’s essential to teach them the advantages of using their employer-sponsored benefits, including 401(k) plans and healthcare plans.
Many young workers just do not understand the benefit of saving for retirement in their late teens or early twenties. But getting started early can make a world of difference, especially when it comes to employer contributions, which essentially represent free money for the purpose of saving for retirement. The more employees contribute to their plans early in their career, the more they’ll receive from their employer. And those funds will compound over the course of their lifetime, setting them up for success in planning their ideal retirement when the time comes.
5. Don’t Be Afraid to Ask for Help
Probably the most important tip for those entering the workforce is that there are no stupid questions. We all start somewhere when it comes to our financial literacy, and it’s always best to ask for help if they’re unsure how to handle a financial situation or reach their financial goals. While you, as a parent, can be a great guide to your children, chatting with a financial professional can be a great chance to have a neutral party educate your children on best practices when it comes to managing their money.
As a Fee-Only Fiduciary firm, our CFP® team is ready to help you and your family in support of your unique goals with unbiased advice. Connect with us to ensure you stay on track to meet your goals. Learn more about how to get started with Washington Wealth Advisors here.
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