A Young Adult’s Guide to Wealth Management Basics

Adults are responsible for their contracts and agreements, health and education records, financial accounts and more. Responsible adults take time to understand those contracts and terms, review and update who can access their medical and education records and begin—or continue—learning about finances and planning for the future. For young adults, wealth management starts with understanding income, expenses, savings, credit and long-term planning.

As a young adult, you are beginning to experience how the U.S. financial system works. The sooner you understand your place in it and how to plan wisely, the better. A helpful first step is understanding your current financial situation.

Step 1: Understand your current financial accounts.

What accounts do you have now?

• Savings and/or Checking Accounts – Have you saved money in a bank account, either on your own or jointly with an adult? Contact the bank to ask whether any action is needed now that you are an adult. A “savings” account is generally used for emergencies, future needs, or goals. A “checking” account may be less intuitive because many new adults in 2026 no longer use physical checks. Think of it as a “spending” account for short-term needs or goals. Your checking or spending account will likely include a debit card, which uses money you have already deposited to pay another person or business.
• Custodial Accounts (Example: Parent Name, Custodian for Child Name, UGMA/UTMA). A family member may have opened this type of account for you when you were a minor. Now that you are an adult, you may need to contact the provider to transfer the account from the custodian’s name to your own. Keep in mind that the custodian may have chosen to delay the transfer of control until age 21, and each account may be set up differently. A custodial account may be an investment or savings account available for current expenses, or it may be a retirement account intended for later in life.
• Beneficiary on an Account – You may be named as the beneficiary of a Section 529 college savings account, a trust, or another account. These accounts typically do not change ownership simply because of your age. Instead, the owner or trustee is responsible for informing you of your rights and interests at certain ages. You can ask how these accounts may affect your current financial picture, but you likely will not control them.
• Credit Accounts/Cards – As a minor, you could not legally open a credit card account, though you may have been an authorized user on an adult’s account. Once you turn 18 and have income, you may qualify for a credit account and begin building a credit score, which can help when applying for loans for major purchases such as a car or home. That said, not every 18-year-old should have a credit account. Only get a card if you can pay the full balance every month; otherwise, interest charges can quickly become a serious burden. Unlike a debit card, which uses money already in your account, a credit card uses the credit provider’s money, which you repay monthly. If you do not repay it, you will be charged interest and that rate may be high for a young person. If you apply for credit, start with a very low limit, even if you are approved for more. You can ask for the limit to be reduced. Pay the balance in full each month. If you cannot, cut up the card and cancel the account.

Step 2: Understand your income, taxes, and expenses

• Income – What money do you receive from work, self-employment, or recurring gifts?

Gifts are generally not taxable to you as the recipient.

If you receive a paycheck, your employer will withhold required taxes, including:

• Federal Insurance Contributions Act (FICA) – a flat 7.65% tax withheld from employee paychecks.
• State and local taxes vary based on where you live and work and may range from 0% to 13%.
• Federal tax withholding generally ranges from 10% to 37%, depending on your income, dependents and Form W-4 information.

Your gross earnings and take-home pay can differ significantly depending on withholding.

If you are self-employed, you must set aside money for income and self-employment taxes. As a general rule, consider saving at least 25% to 30% for taxes. If self-employment is your main income source, consider working with a certified public accountant (CPA) on tax planning.

Each April, you will reconcile with the government to determine whether you paid too much tax, resulting in a refund, or too little, meaning you may owe more for the prior calendar year.

• Expenses – What fixed and variable costs do you have? Fixed costs, such as rent, phone service and internet, follow a predictable schedule and usually stay the same. Variable costs, such as groceries, gas and utilities, occur regularly but may change in amount or frequency.
• Budget using after-tax income and estimated expenses –

Conservatively estimate your expected monthly income using after-tax, or take-home, pay from all sources. Even if you receive regular gifts, it is usually best not to rely on them in your plan because they could stop at any time.

List all current and anticipated expenses. Start with monthly or more frequent expenses, including the name and amount of each fixed expense. Then add variable expenses and your typical monthly spending for each. Be realistic about lifestyle costs, such as lunch with friends or coffee on Sunday mornings, and include a line item for these “entertainment” expenses. Plan for less frequent expenses, such as annual car registration, semiannual auto insurance, vehicle maintenance, subscriptions and other commitments. Set aside money each month so funds are available when those bills come due.

Budgeting is the first step toward taking control of your financial life. It helps you make informed decisions with your money. Without a budget, annual expenses or unexpected emergencies can leave you short on cash.

Once you have a general idea of what your monthly expenses are, look at them in respect to your expected income.  Ideally, you will have more projected income monthly than you have expenses. If not, any accounts you have may need to be used and will eventually be depleted. Or you may need to find expenses that can be reduced or eliminated. Assuming your income is greater than your expenses, you will want to accumulate about 3 – 6 months of spending need in your account. This is crucial for the unexpected emergencies, not for the impulse purchases that you cannot resist! Once you have your emergency funds saved in your account, the fun and longer-term goal saving can begin.

Step 3: Set Savings Goals as Part of Your Wealth Management Plan

What needs do you have coming up soon, and what wants do you have the ability to start saving for?

• Near-Term Needs – When you have a large expense on the horizon, begin saving on a regular basis so you will meet the total needed at the time needed. For example, if you know that you will need new tires for your vehicle and the estimated cost is $1,000 and the mechanic estimated that your current tires will last only 5 months, then you know you should try to save at least $200/month starting now. When you add this new savings goal to your budget, you may need to adjust your lifestyle expenses downward or reevaluate subscriptions, etc.
• Long-Term Needs – The most important long-term need that most new adults don’t think about is the need to save for retirement. When you are younger, the power of compounding growth is incredible. What this means is, the sooner you begin saving on a regular basis into a retirement account, the better! If your employer offers a retirement plan, you can elect to have a portion of your paycheck saved there. They will have administrators that can help you determine the amount that works both with your budget and takes advantage of any company match they provide. While this will reduce your after-tax take home pay, the potential growth and compounding over your working years will eventually offset this.
• Wants – Do you have dreams of a new vehicle, buying a home, a trip, or all the above? Saving monthly for these now will add up. Consider opening a separate savings account for each “want”. As your budget allows, add to these accounts on a regular basis. I’ll say it again, this is “as your budget allows”. Keep in mind that the items wanted are something that should be held off until after you have accumulated your emergency fund (3 – 6 months of living expenses) and have enough to allocate to saving for both your near-term needs and your retirement accounts. It is very common for young people to be tempted to put their wants first and plan on starting to save for retirement when they have more income. The reality is that expenses don’t typically go down over time, they increase, and waiting for even 5 years can significantly impact your retirement savings growth and compounding.

So, happy 18^th birthday! Be smart with your money. Know where it is, what is coming in, what is going out and budget and plan for future cash flow needs.  Building strong habits now is one of the first steps toward lifelong wealth management.