5 Financial Skills to Master When You’re Young

Quick Answer

When you’re young, you may not be keen to focus on finances, but your future self will thank you. It’s optimal to start mastering financial skills early in life, including budgeting, saving for emergencies and goals, improving your credit and paying bills on time.

Young woman writing on notepad financial skills to master.

We never stop learning in life, and some of us may not hone certain skills or understand particular aspects of personal finance until we're older. Perhaps nobody ever taught us how things like credit work, or we feel intimidated by investing in the stock market.

But proactively overcoming a lack of knowledge and fears and gaining financial skills when you're young will help set you up for solid financial health and a brighter (and less stressful) future. Make sure you're learning―and then mastering―these five important money skills.

1. Spending With a Budget

Sure, creating a budget isn't the most thrilling activity in the world, but it's one of the most beneficial. Learning to budget is a skill that will pay dividends over your lifetime, helping you ensure you can afford your expenses, live within your means and attain your future goals.

There are many different ways to create a budget and manage your money, from setting up high-level views of incoming and outgoing money to using detailed systems that categorize every dollar spent. Budgeting can also be customized to your preferences, from using a budgeting app like You Need a Budget to create your own system in a spreadsheet. And yes, budgeting is possible even with low income or irregular income. Budgeting can help you get control over debt, avoid the end-of-month scaries and make sure you are on track to hit goals like going on vacation or buying a home.

2. Saving for Emergencies

In 2021, the Federal Reserve found that nearly a third of Americans don't have enough cash or savings to weather even small financial emergencies of $400. When you get in the habit of setting aside money in an emergency fund, you prepare your finances for unexpected expenses such as a broken-down car or a surprise vet or medical bill.

So how much do you need in an emergency fund? It's ideal to have three to six months of living expenses set aside, particularly in case of a job loss. It's wise to keep this emergency money separate from savings accounts for spending goals, such as savings for a vacation or wedding, to avoid them getting mixed up together.

There are many ways to create your emergency fund. One way is to set up an automatic transfer for a set amount from your checking to your emergency savings account each month or week. Even if you can't afford to set aside much in the beginning, something is better than nothing. Then consider contributing some funds whenever you receive a windfall, such as a work bonus, tax refund or birthday gift. Regular deposits will add up fast, leaving you a cushion for emergencies so you don't have to take on costly debt.

3. Minding Your Credit

Starting to establish and build credit when you're young is a key way to support your burgeoning financial health. As you get older and you aim to maintain good credit or continue to improve it, the same money habits and behaviors come into play. That means the skills you develop as you build credit will continue to serve you well later in life.

Having good credit is important for a staggering number of things in life. Here are some examples:

  • Your credit is reviewed when you apply for nearly any type of loan, line of credit or credit card, and having bad credit can mean a rejected application or steep interest rate.
  • Landlords and employers often check credit to ensure financial stability and could use this as a deciding factor in their decision.
  • Utility and mobile companies typically do a credit review to make sure the user has a solid repayment history. Those who don't might get turned down or have to cough up high deposits.

Actions that support good credit include keeping your debt balances low, minimizing how often you apply for new credit, having a mix of different kinds of credit, maintaining long-term accounts in good standing, and …

4. Paying Bills on Time

Learning to pay your bills on time is crucial to building and improving credit, but it's so important, it deserves its own point. That's because your payment history makes up the largest portion of your FICO® Score —a massive 35%—so your bill-paying habits have major repercussions.

Paying your bills on time regularly helps build a positive credit history, while paying bills late or missing payments will drag down your credit score. Additionally, some companies or creditors penalize late bills with late payment fees, and in some cases, higher interest rates. Failure to pay can result in your account going to collections, which can really tank your credit.

It pays off to get in a routine of paying all bills on time. If you find it hard to keep track, sign up for autopay on your bills or set recurring calendar reminders.

5. Planning for the Future

One of the best ways to reward your future self is to start planning, saving and investing now, especially since most investments reward you over the long term. This skill is separate from maintaining an emergency fund, which is for unexpected expenses. Here, we're talking about expected expenses you can prepare for—both short-term savings like a mortgage down payment and long-term investments like those you'll use to fund your retirement.

Rather than waiting until you need money for major life expenses, there are some ways you can master getting ahead and plan for the future. Some may be more relevant than others depending on your age and where you're at in life, but it's never too early to start thinking about ways to plan for your financial future.

  • Create a savings account, or sinking fund, for large expenses, such as a car or home down payment, vacation, wedding, adoption, medical procedure and the like.
  • Contribute to a workplace retirement account, such as a 401(k), or an individual retirement account (IRA) if your employer doesn't offer retirement benefits.
  • Invest in the stock market, mutual funds or other investment accounts. One of the simplest ways to do this is through your 401(k) or IRA, but you can also open a brokerage account for additional investments.
  • If you have a child, open a tax-advantaged 529 account for your child's college tuition (or your own, if you plan to go back to school someday).
  • If others depend on you for their livelihood, purchase life insurance.

The Bottom Line

Let's be real: Money matters aren't always the most fun compared to everything else vying for your attention. Financial literacy isn't taught broadly in America, and it can feel overwhelming to try to absorb so much knowledge and then practice all of these new skills.

Take it in small pieces and slowly build your confidence. As you master these skills, you'll improve your financial situation, which can reduce stress and improve your quality of life and even your relationships. Plus, there are plenty of tools and resources out there that make it easier, like Experian Boost®ø, which counts your eligible utility, streaming service and rental bill payments toward your FICO® Score.