Good Financial Advice for Young Entrepreneurs

Last Updated: 

May 5, 2024

The younger an adult is when they begin learning how to manage their finances, the faster they can reach their financial goals. This will enable them to achieve financial independence and support a strong, secure future. 

To be a financially responsible entrepreneur, many of these are fairly simple but important steps to take to protect your income and monitor your spending. Regardless of where your finances are, it's never too late to learn. 

Here is financial advice for young entrepreneurs to follow:

Key Takeaways on Financial Advice from Young Entrepreneurs

  1. Budgeting Basics: Create and follow a monthly budget to track income, expenses, wants, needs, and savings, ensuring financial discipline and goal alignment.
  2. Choosing a Financial Partner: Research and select a bank or credit union that aligns with your financial goals, offering low-fee accounts and facilitating wealth growth.
  3. Debt Management: Maintain a healthy debt-to-income ratio by prioritising high-interest debt repayment and keeping debt payments under 35% of your gross monthly income.
  4. Distinguishing Needs from Wants: Differentiate between essentials and non-essentials to prioritise spending and maximise financial resources.
  5. Saving Strategies: Make small lifestyle changes to save money, allocate income according to the 50/30/20 budget rule, and build an emergency fund for financial security.
  6. Credit Card Caution: Limit credit card usage to emergencies, avoiding excessive debt accumulation and preserving a good credit score.
  7. Rewarding Yourself: Incorporate monthly rewards into your budget to make saving and financial responsibility enjoyable and sustainable.
  8. Emergency Preparedness: Maintain an emergency fund equivalent to 3-6 months' expenses to cover unexpected financial challenges without resorting to debt.
  9. Retirement Planning: Start saving for retirement early, even with small contributions, to benefit from compound interest and secure future financial stability.
  10. Setting Clear Goals: Establish specific financial goals and create actionable plans to achieve them, motivating ongoing financial progress and success.
  11. Continuous Learning: Invest in financial education to enhance money management skills, understand investment opportunities, and avoid debt traps.
  12. Resisting Peer Pressure: Stay focused on your financial goals and resist external influences that may lead to overspending or jeopardise financial independence.
  13. Prioritising Health: Maintain physical and mental well-being as a priority, recognising the importance of balance and self-care in achieving long-term financial success.
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Create a monthly budget

Write a monthly budget, sharing your income, expenses, wants, needs, and savings. Note down what you earn, what you spend, what you want, what you need, and how much you save. Check it often to monitor your spending and maximise your earnings.

Following your budget helps you manage your money better and meet your financial goals. Review it at the end of the month to see what worked and what didn't. You can track expenditures and maximise your income when you stick with it.

Choose a financial partner

Research different banks and credit unions. Look for a financial institution where you can host accounts, grow your wealth, and pay minimal fees.

Ideally, find a partner who matches your financial plans and offers low-fee accounts. Your bank or credit union should support your wealth growth while making it easy to manage your money.

Maintain a healthy debt-to-income ratio

Controlling your debt is critical to staying financially healthy. Debt comes from mortgages, auto loans, student loans, or credit cards. Pay it off quickly, and always tackle high-interest debt first. Know your debt-to-income ratio, a.k.a. your monthly debt payments divided by your gross monthly income. 

You may have borrowed money from payday loans to make ends meet. That’s okay for the short term. However, you should have a long-term plan to restore your debt-to-income ratio to a manageable level. The best budgets maintain or work to a debt-to-income ratio under 35%. This means the money you spend on monthly debts shouldn't be more than 35% of what you earn before taxes. The guideline helps you stay on your budget and avoid debt.

Don't lie about your needs or wants

Needs are not the same as wants. If they aren't essentials, wonder why you pay 'x' dollars for 'y'. These funds could be better used in other ways.

Save money by making small changes

Simple changes add up. Having coffee at home instead of buying it on the way to work can save you hundreds yearly. Look at your rent and see if there's a cheaper place to stay. Evaluate every expenditure.

Set a budget of 50/30/20

The best budget is generally one where 50% of income is allocated to your needs, 30% to your wants, and 20% to savings. If you are nowhere near these numbers presently, look for ways to cut your expenses or increase your income.

Emergencies can be handled with a credit card

Pay with a debit or cash. Do everything you can to not use your credit card. While credit cards will help you build a strong credit score, they may also mean putting yourself in debt slowly over time and paying interest.

Maintain a good credit score

A massive mistake many young adults make early in their independence is taking on too much credit card debt and ruining their credit scores. Do everything you can to safeguard yourself. Be smart about credit card usage and avoid excessive purchases.

Give yourself monthly rewards

As part of your budget, put some money in your pocket. Set aside money to celebrate yourself or get a reward. This will make saving and money smart fun and alleviate pressure. It's like a cheat meal!

Invest in an emergency fund

Emergency funds are your last resort. When you hit a hardship that requires financial help, be ready. Most importantly, an emergency fund prevents you from plunging into debt when an emergency happens. Contribute to your emergency fund regularly until you have 3-6 months' expenses saved.

Make sure you save for retirement

Start a long-term retirement savings account. It can be as simple as taking five dollars off every paycheck. It doesn't need to be large amounts, especially as a young adult. With compound interest, these smaller contributions will only grow bigger over time.

Establish clear financial goals

A goal could be paying off debt, saving 'x' dollars by the year's end. It could also be tied to a specific purchase, such as buying a new car. Set goals and have a path to them. Motivate yourself for economic progress.

Get as much information as you can

Personal finance – and finance in general – is a wide field. Learn as much as you can. How to manage money? Investing in the right portfolio. How to save money? How to maintain and grow wealth? How to stay out of debt? These are all very relevant topics for young adults.

Avoid getting sidetracked by others

Friends, family, or your partner may encourage you to spend more and spend money you don't have. At the same time, you can be attentive to what you're doing. Don't let others' habits take you so far off course that your financial independence is threatened.

Put your health first

Some people may sacrifice their physical or mental health when excited about money and finances. This is the exact opposite of what you should be doing. Eat right, exercise, sleep well, and treat your body well. Ensure you rest so as not to impact your physical or mental health negatively.

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