We’ve all heard the familiar tales of young adults getting by on instant noodles and sharing living spaces with friends, or sometimes even staying with family members. While those stories might seem overtold, they hit home because getting your financial footing can be challenging. Now, as Gen Z steps into their mid-20s, they’re navigating an even rockier financial terrain. Higher expenses and limited resources mean their path is tougher than what previous generations faced.

Student loans and steep rents are significant hurdles. “These expenses consume a large portion of any young adult’s budget,” explains Ross Mayfield, an investment strategy analyst at Baird. “While every generation has its own set of challenges, these are substantial for younger individuals today.” 

Despite these obstacles, attaining financial stability and even building wealth is doable. It requires a well-thought-out and comprehensive strategy. “The key is to look at your financial plan as a whole, not in isolated parts,” advises Anthony H. Williams, founder of Vivid Advisory. 

Below are seven essential financial tips for young adults to start off on the right foot:

Avoid buy-now-pay-later when possible

Despite their rising popularity, experts caution against overreliance on buy-now-pay-later (BNPL) services like Affirm and Afterpay. Although they might seem like a convenient way to spread out costs, those small purchases can quickly snowball, straining your budget. 

“BNPL often leads to more BNPL,” warns credit specialist John Ulzheimer. Using installment plans for regular expenses can become an unbreakable habit, and managing multiple accounts can be challenging. 

Another downside is that even if you pay off BNPL balances promptly, it does little to build your credit. Unlike credit card payments, which are reported to credit bureaus to establish your credit history, most BNPL firms don’t report your activities.

Start saving some cash

Experts agree that setting up an emergency fund is the top priority for any young adult. Given that average credit card interest rates are now over 21%, according to the Federal Reserve, even minor setbacks like car repairs can severely impact your finances. 

“A small emergency fund should be your initial focus,” advises Steve Matejka, COO of Valley Strong Credit Union. Aiming for $1,000 initially can help cover most everyday emergencies and is manageable even on a tight budget. Eventually, expand this fund to cover a minimum of six months of living expenses to safeguard against job loss or other major financial disruptions.

Max out your match

Don’t miss out on free money by neglecting your 401(k) employer match. “At the very least, contribute enough to get the match,” advises Williams. 

Starting young gives you the upper hand with the power of compounding over decades. “Investing is all about the long haul. The sooner you start, the more you benefit from compound interest,” Williams adds. 

If you’re not an investment pro, stick with simple options like index funds. “Index funds consistently outperform other strategies over time,” says Matejka.

Or, explore a Roth

Young professionals can benefit greatly from Roth IRAs and Roth 401(k)s thanks to their unique after-tax contributions. If your employer offers a Roth 401(k) or you meet the income criteria for a Roth IRA (under $161,000 for single filers in 2024), consider these options for two main advantages: 

First, paying taxes upfront means you’re likely doing so at a lower rate, as your earnings are expected to rise over time. Second, your investments grow without being taxed, and withdrawals in retirement are tax-free. 

“The impact of tax-free compounding returns is significant,” notes Matejka.

Build credit responsibly

Many Gen Z individuals are steering clear of credit cards, likely after witnessing their parents struggle with credit card debt. 

“Avoiding credit is problematic,” says Ulzheimer. Although the intention is good, this approach prevents you from building a positive credit history. Lenders need proof of your ability to manage bills responsibly to offer you favorable rates on loans and mortgages. 

“It’s commendable to avoid bad debt, but completely shunning credit cards due to fear is excessive,” Ulzheimer adds.

Get financially literate

Financial literacy is your ticket to making wise money decisions. Whether you’re reading personal finance books, following financial experts, or taking online courses, educating yourself is paramount. Start with the basics: understand how interest rates work, the importance of budgeting, and the difference between good debt and bad debt. 

Knowing these fundamentals can significantly impact your financial well-being. For instance, understanding compound interest can motivate you to start saving cash, while a good grasp of budgeting can help you avoid unnecessary debt. Make it a habit to stay informed, set financial goals, and continually reevaluate and adjust your financial plan as needed. 

Celebrate your milestones and stay committed to learning. The more you know, the better equipped you’ll be to navigate the complex world of personal finance. Remember, your financial future is in your hands, and education is the key to unlocking its potential.

Minimize debt

Managing debt is an essential step toward financial stability. Student loans and credit cards can spiral out of control, putting you further behind on your saving and financial goals. Instead of letting your interest payments eat up your cash, it’s best to create a debt repayment plan tailored to your situation. Familiarize yourself with the two most popular methods to begin: snowball and avalanche. From there, considering talking to a financial advisor or financial counselor if you still have questions.

Remember, over 50% of Americans believe avoiding excessive debt is crucial for financial well-being. By creating a clear debt repayment plan and adhering to it, you’ll pave the way for greater financial freedom and enable yourself to focus on building wealth. Whether you choose the snowball or avalanche method, the key is consistent and responsible repayment.

The bottom line

Your financial journey starts when you decide, not at some vague point in the future. By establishing solid financial habits today, you’re setting yourself up for the lifestyle you desire and a safety net for life’s unpredictable moments. A well-thought-out budget, debt management plan, and retirement account are game-changers when you’re just starting out. Luckily, you’re not alone—financial advisors and counselors are there to help you navigate the process.