What does it mean to be an “adult” with money? What are the recognizable signs of financial maturity? To answer this, we’ll expand on a list co-author Kate Phillips shared in a Total Wealth video on “Adulting with Money.”
First—in case you are unfamiliar, let’s define “adulting.” The term refers to one’s ability to behave responsibly and maturely to accomplish necessary tasks.
While the focus is decidedly on behavior, financial maturity isn’t just a checklist of habits or accomplishments. It’s also a mindset. Adulting includes an understanding the role money plays in the world and the opportunities—and responsibilities—it brings.
Let’s dive in!
The 7 stages of Financial Maturity
These stages can be somewhat sequential, although they may come in a slightly different order.
1. Take responsibility.
Be willing to be the one the buck stops with.
Children rely on adults to take care of them. The adult is the one who makes sure the bills are paid and all of the essentials are taken care of. This isn’t always fun or easy—but the first step towards adulting is independence from your parents!
This happens at different times and ages depending on the situation. Some children are “on their own” as teenagers. Some parents take care of their children’s financial needs through college until they have their first steady job.
Some adult children struggle to take responsibility in what is sometimes termed “failure to launch.” (You may recall the cringe-worthy situation in which a New York couple filed to evict their 30-year-old unemployed son after a decade of free rent.) When a person fails to take responsibility, they may end up dependent on their parents (or the government or some other entity) for years or even decades.
Willingness to take responsibility doesn’t mean guaranteed smooth sailing. But it does mean that you try to solve a problem yourself rather than automatically contacting “The Bank of Mom and Dad.”
2. Take on a growth mindset.
Believe you can learn and improve your skills and knowledge!
Let’s face it—managing money doesn’t come naturally to most people. Nobody is born knowing how to open a bank account, pay taxes, manage credit wisely, or invest. Even Albert Einstein said, “The hardest thing in the world to understand is the income tax”—so why should it be easy for you?
The term “growth mindset” was coined by Carol Dweck in her research and book, Mindset: The New Psychology of Success. Specifically, growth mindset refers to one’s willingness and ability to embrace challenges and persist in face of setbacks, knowing that your efforts will eventually lead to mastery.
When it comes to personal finance and investing, there is most definitely a learning curve. When you encounter it, the trick is to resist throwing up your hands in frustration because you “aren’t good with money” or “have trouble with math.” Rather, be willing to learn from others, ask questions, and embrace the learning curve.
The opposite of a growth mindset is a fixed mindset. A fixed mindset leads people to avoid challenges and assume they’re “just not cut out for that.” A fixed mindset causes people to give up too quickly and never reach their potential.
3. Be consistent.
Make mundane money tasks such as earning, saving, and paying bills a habit.
You become consistent with your financial habits. You follow through even when it’s inconvenient or you encounter obstacles. When setbacks such as unemployment or emergencies occur, you become a problem-solver.
Sometimes consistency is learned after suffering the consequences of inconsistency! Late fees and penalties are a motivator for most people to figure out how to accomplish necessary financial tasks regularly and on time.
4. Separate needs from wants.
Prioritize what is truly important to you when it comes to expenses.
Becoming a successful saver and investor requires you to earn more than you spend. Managing your spending successfully requires prioritization!
To that end, strive to become conscious of the difference between:
- The dreams and true desires that make it worth foregoing other expenses.
These needs, wants and dreams will be different for different people. There are no absolutes, as there are many creative ways to live. (Want to eliminate rent? Become a house-sitter or a caretaker!) What matters most is that your spending reflects your values.
Just make sure that saving ends up a “need” and not a “want.” We suggest you save first, then spend the rest on whatever you like!
5. Be prepared for emergencies.
Put your house in order so that you’ll be ready for anything!
If 2020 has taught us anything, it’s that you never know how or when an emergency or economic downturn will strike. That’s why saving and preparation is essential.
Some people had saved and prepared for the unexpected in advance. Many were caught off-guard. Some even found themselves at food banks or charities to feed their families.
Have a robust emergency fund, liquid savings, available credit (such as a credit card or two that you only use if absolutely necessary. For more on emergency preparation, see our article, “5 Steps to Prepare for an Emergency.”
Emergency preparation also includes life insurance! Term insurance can help protect young families on a budget. Just make sure it is convertible term insurance so that when you are ready to upgrade, your insurance can grow with you!
6. Shift from short-term to long-term thinking.
Strategize for the future while you take care of today.
As we mature, we move from immediate gratification (“I want it now!”) to short term considerations (how to pay rent each month), then to long-term strategizing.
It is this shift in thinking that allows you to:
- Buy a home.
- Utilize permanent whole life insurance for long-term saving and protection.
- Save for major expenses such as a college education or a new roof.
- Save for future investments that require lump sums (such as life settlements or private lending opportunities).
- Prepare for career changes and transitions and (perhaps) eventual retirement.
- Engage in estate planning activities such as preparing a will and trust.
Because life is full of unexpected surprises, we suggest saving in an “all-purpose fund.” Rather than saving in many separate “buckets” for different purposes (college fund, retirement account, healthcare expenses, etc.) it makes more sense to have a multi-purpose fund that can make your money multi-task!
This long-term focus also includes your legacy, which we address in the last stage.
7. Shift your focus from self to others.
Taking responsibility for others is the essence of “being the adult in the room.”
This shift in focus generally has two stages: taking responsibility for others in the present, and leaving a future legacy.
For many, the first shift involves transitioning from a solo person to being part of a family. You may have a spouse to consider, children to support, or aging parents to look after. This may include helping children with a home down payment, assisting grandchildren with college tuition, or helping parents or grandparents maintain their home.
If you are a business owner, you may have employees or other team members who depend on you. Your circle of responsibility expands even further!
Then as you age, it is natural to start considering what you wish to leave to others. This may include a financial legacy as well as many non-financial gifts, from heirlooms and photos to wisdom and memories.
The idea of leaving a legacy may even have you strategizing about the impact you can have for generations to come! For more on this, read this excerpt from our Perpetual Wealth book on “The Four Cornerstones of Generational Wealth.”
The Journey of Financial Maturity.
There is a time to be a child, and a time to grow up. Learning to handle your finances is ultimately not simply about money—it’s a journey of personal growth and life mastery!
While adulting with money may seem intimidating or difficult at times, it’s not nearly as hard as the alternative. Those who fail to take responsibility, separate wants from needs and prepare for the future inevitably find themselves in pain. It’s no fun just scraping by or dealing with creditors.
In contrast, a life of prosperity is one of freedom, joy, and abundance! It is a wonderful thing to be able to use money as a tool to create the life you desire. Prosperity isn’t just about the numbers—it creates possibilities for generosity and fulfillment.
Financial maturity is a journey worth taking! And sometimes it helps to see a “map” of the journey. We hope you’ll share this article with the young adults in your life. Let’s help our next generation “adult with money”!
And if you would like our assistance or have questions about your finances, see what Partners for Prosperity is all about. We’re here to help you and your family enjoy a rich life!
—By Kate Phillips and Kim Butler