Your twenties are a period of transition between childhood and adulthood which means the financial choices you make here can help you in achieving long-term success when it comes to managing your money successfully - things like making a plan to pay off student loans, avoiding credit card debt, starting to save early for an emergency fund, and working toward larger goals, such as saving for a down payment on a house. Taking control of your finances at an early age can make it easier for you to reach your goals in your 30s and beyond, even if you are cash-strapped in an entry-level position. Here are some things we wish we knew about money in our 20s.
Commit to a budget
Making a budget can help you organize your finances, making it easier to manage your monthly income and expenses. While creating a budget may seem intimidating, there are tons of tools you can find on the internet along with apps available to help you get started. Websites like TaxAct can help you estimate your annual tax bill. Include it in your budget so that come tax season you won’t find yourself short.
The next step is to keep to your budget – this is important. Regularly review your budgetary goals to keep yourself on track to avoid overspending. For starters, you may set spending alerts on your credit card and bank accounts. Try recording your purchases in your spreadsheet or budgeting tool as they happen. And if you split spending with someone, make sure you're both on the same page with the budget. Make sure you both have access to the budget and hold each other accountable.
Skip the credit card debt
Having a credit card balance can be a slippery slope. Your 20% interest credit card may turn any debt into double its amount in just 5 to 7 years (yikes!), assuming no late fees or surprise fees, so you should probably pay attention to what you charge so you can pay your account on time. ALSO, you should know that by having a strong credit score you’ll be getting the best credit cards and loans, seeing that a stronger credit score means better terms, which can save you thousands in interest.
One of the downsides of growing credit is that you need some credit history to get a credit card, but it's difficult to get one without any. One option is to use a family member or friend's credit card. You might also apply for a secured card, which works like a regular credit card but requires a deposit (which is usually around $200).
Positive payment history for monthly utility, phone, and bills will help improve your credit score. The easiest method to increase your credit score is to use your credit card regularly, spend within your means, pay on time every month, and pay in whole whenever possible.
Adopt some good money habits
Living within your means is one of the best money habits you can adopt. It’ll help you save money faster as well as help you in learning the difference between needs and wants (the key when it comes to avoiding unhealthy spending habits). Paying off debt is one of the most crucial things to do while developing healthy money habits. Debt is not only costly, but it can also take a toll on your mental health when you’re constantly stressing about money. You may feel as if you are stranded at sea without a life raft, but with the appropriate debt-repayment strategy, you could be debt-free in no time. This way you can start saving more money and safeguarding your financial future by paying off your debt.
TIP! By automating your accounts, you can simplify your life and ensure that your expenses are paid on time. Start by setting up automatic bill payments and even have money transferred to your savings account automatically. You should still check your accounts on a regular basis, but this is a great way to gain financial control.
If you have a 401k, strive to boost your contributions as much as possible. This can help you save money for retirement while also lowering your taxable income. Make it a goal to boost your deductions to the highest amount that your employer will match; it's like getting free money! Check out Seeking Alpha’s article about that if you want more info.
Don’t forget your retirement
If you're anxious about your retirement savings or haven't started yet, you should consider saving for retirement, this can help you get started regardless of your age or investment size. To retire comfortably, you should have saved 10 times your annual income by age 67, according to Fidelity Investments, a retirement plan provider.
The thought of saving a huge amount of money is overwhelming, but Fidelity experts advise setting modest savings goals throughout your life. For example, Fidelity recommends saving one year's pay by age 30, which is roughly $40,508 based on median US earnings.
Even if you don't have much leftover after bills, whatever money you save now will increase because of compound interest. If you aren't ready to invest, a high-yield savings account is a good option.
TIP! Forbes Advisor has a detailed article on what kind of retirement and investment accounts you should get into to have a worry-free retirement saving plan.
All in all, making wise financial decisions in your twenties can pay off in the long run and help you achieve financial success in the future.