Financial advice for young adults – tips from accountants

by Jun 18, 2024Finance

Managing your finances as a young adult can feel overwhelming, but getting a good grasp on your money early on will pay off in the long run. We’ve compiled some essential financial planning tips to help you take control of your finances and set yourself up for a secure future.


Start with a budget

Creating a budget is the first step towards financial independence. A budget helps you track your income and expenses, making it easier to see where your money goes each month. Start by listing your sources of income, such as your salary, freelance work, or allowances. Then, note your expenses, including rent, utilities, groceries, transport, and entertainment.

Once you have a clear picture, you can identify areas to cut back. Maintaining your budget will help you avoid overspending and build healthy financial habits.


Build an emergency fund

Life is unpredictable, and having an emergency fund can provide a financial safety net. Aim to save at least three to six months of living expenses. This might seem daunting, but start small and then build up over time. Regular contributions to your emergency fund, even modest ones, will add up.

Automate your savings to make this process easier. Set up a standing order from your current account to a separate savings account every month. This way, you won’t be tempted to spend the money elsewhere.


Pay off debt early

If you have student loans or credit card debt, prioritise paying them off as quickly as possible. Interest on debt can accumulate rapidly, making it harder to achieve financial stability. Focus on paying off high-interest debts first, such as credit cards, while making minimum payments on other debts.

Consider using the snowball method, where you pay off your smallest debts first. The sense of achievement from clearing these debts can motivate you to tackle larger ones.


Start saving for retirement

It’s never too early to start thinking about retirement. The earlier you begin saving, the more time your money has to grow. If your employer offers a workplace pension scheme, enrol and contribute as much as you can afford. Employer contributions and tax relief can significantly boost your retirement savings.

If you’re self-employed or your employer doesn’t offer a pension scheme, consider opening a private pension. Several options, including stakeholder and personal pensions, are available, each with different features and benefits. Research and choose the one that best suits your needs.


Invest wisely

Investing can be a great way to grow your wealth over time, but it’s important to understand the risks involved. Before investing, ensure you have a solid financial foundation, including a budget, an emergency fund, and manageable debt levels.

Consider low-cost index funds or exchange-traded funds (ETFs) as a starting point. These investment options offer diversification and lower risk compared to individual stocks. Consult with a financial adviser to develop an investment strategy that aligns with your goals and risk tolerance.


Monitor your credit score

Your credit score affects your ability to borrow money, rent a flat, or even get a job. Regularly monitoring your credit score and taking steps to improve it can save you money and open up financial opportunities. Pay your bills on time, keep your credit card balances low, and avoid applying for too much new credit at once.

You can check your credit score for free through services like Experian, Equifax, or ClearScore. Understanding your credit report will help you identify any errors or areas for improvement.


Plan for big purchases

Whether saving for a car, a house, or a holiday, planning big purchases can help you avoid debt and make smarter financial decisions. Set a savings goal and create a timeline for achieving it. Break down the total amount you need into manageable monthly savings targets.

For example, if you plan to buy a car in two years and need £5,000, you’d need to save approximately £208 per month. Adjust your budget and savings plan to accommodate these targets.


Protect yourself with insurance

Insurance is an essential part of financial planning. It provides a safety net in case of unexpected events, such as illness, accidents, or theft. Make sure you have adequate coverage for your needs, including health insurance, car insurance, and renters or home insurance.

Review your insurance policies regularly to ensure they meet your needs, and shop for the best deals.


We’re here to help

At Diamond Accounts, we’re here to help you navigate the world of personal finance. Our team of experienced accountants offers tailored advice to help you achieve your financial goals. Whether you need help with budgeting, saving, or investing, we’re here to support you every step of the way.

Get in touch for expert financial advice.

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