Smart financial goals to set while you’re still young

1. Learning to live with a budget

Living within your means is a habit that sets the foundation for the rest of your financial plan. The quicker you develop this habit, the better.

If you’re not developing good habits, you’re developing bad ones. And bad budgeting when you’re young can lead to costly consequences that last long into adulthood.

Kickstart your budget planning with a simple four-step personal finance audit.

Perform a savings and income audit

To start, you need a clear picture of what you’re working with. Write down all your bank account balances, noting which funds are easily accessible and which are tied up in illiquid investments. Then, jot down your expected net income per pay period.

Nail down fixed expenses

List out all your fixed and variable expenses. Fixed expenses stay consistent each month, like car payments, cellphone bills and health insurance.

Variable expenses, including groceries, entertainment and utility bills, fluctuate each month. For these, you’ll need to estimate — or better yet, track your expenses with an automated budgeting app.

Once that’s done, calculate your cash flow by subtracting your total monthly costs from your expected monthly income.

Minimize variable costs

Your goal is to maximize cash flow while maintaining a pleasant standard of living. To do this, look for ways to save on your variable costs. That might mean preparing more home-cooked meals, adjusting the thermostat and taking advantage of coupons and discounts.

You might also be able to reduce certain fixed costs, though it can be more difficult. Your rent certainly isn’t going down unless you pack up and move.

However, payments like your cellphone and insurance bills deserve regular scrutiny. While you probably did your research and chose the best option when you first signed up, new deals and better offers pop up all the time. Don’t just set it and forget it for years on end.

Choose your budgeting method to reach your goals

After calculating the money you have coming in and out, choose a budgeting plan of attack. The best budgeting strategy is the one you’re most likely to stick to. This can vary from person to person, so explore all the different budgeting methods to see which suits you best.

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2. Jump starting your nest egg

When you’re young, it’s important to consider your short and long-term finances together.

As you set up your budget, try to set aside 10% to 15% to contribute to your retirement fund. If that’s not doable, contribute as much as possible, then set goals to increase contributions over time.

Retirement may seem like eons away, but investing young can have a dramatic effect on your eventual portfolio size.

For example, if you invest $1,800 at age 20 — just $150 per month — and earn an average return of 7% per year (compounded monthly), your portfolio would grow to nearly $48,000 by the time you retire at age 67. If you waited until you’re 40 to invest that $1,800, it’d be worth less than $12,000 by age 67.

That’s the difference 20 extra years of compounding has on a small, one-time $1,800 investment. With ongoing contributions, the benefits of investing young are even more jaw-dropping. If you are unsure of traditional investing avenues, such as stocks, you can also look into alternative options .

That said, before you start investing for retirement, you should build a solid emergency fund.

3. Creating a debt control plan

Oftentimes, long-term financial success comes down to managing debt wisely.

Over half of four-year university graduates leave college with student debt. And 69% of student debt holders also have other forms of debt, including credit card debt and car loans, according to a U.S. Census Bureau survey.

Not all debt is bad debt, but it can easily complicate your financial goals. When loan payments eat up your entire monthly income, your saving and investing goals get put on the backburner.

If you learn to manage your debt while you're young, you can prevent it from spiraling out of control.

Set up a debt repayment plan

Your debt repayment plan will vary on your specific loans and rates. But it generally makes the most sense to repay your most expensive loan first. If your debt already feels out of control, call your lenders. Believe it or not, they probably want to help.

Use credit wisely

Debt gets a bad rap, but it’s often a necessary evil for expenses that will improve your life. You need some sort of debt to build your credit score, with few exceptions.

Debt isn’t something you should completely avoid because as your credit score grows, you can lock in better rates on auto loans and mortgages.

The key is using debt responsibly. That usually comes down to paying off your bills on time each month and not biting off more than you can chew.

To see where you stand credit-wise, you can request a free credit score.

By working toward these three goals, you’ll be well on your way to hitting all your money-related targets and objectives.