How to Master Money in Your 20s
Most people regard their 20s as a decade of self-exploration and growth. The foundation you build during this time affects the rest of your adult life—especially when it comes to finances. The habits you learn in your 20s can easily carry throughout the rest of adulthood, which is why it’s prudent to start off on
Most people regard their 20s as a decade of self-exploration and growth. The foundation you build during this time affects the rest of your adult life—especially when it comes to finances. The habits you learn in your 20s can easily carry throughout the rest of adulthood, which is why it’s prudent to start off on the right foot. The decisions you make surrounding money also have ramifications that can ripple into your 30s, 40s and all the way into retirement.
Wondering how to master money in your 20s? The key is understanding how your choices in the present relate to your future financial health, then acting accordingly. Below we discuss the basics you need to know.
Create a Budget
Many young adults operate using ballpark figures rather than creating a detailed budget. While this system might work for the time being, it tends to allow for expenditures to slip through the cracks. For example, do you know exactly how much you spend on restaurant food each month? How about transportation costs? Without budgeting, you’re missing opportunities to streamline your spending habits and find ways to save.
Start by tracking your spending habits. Then decide which purchases you consider “wants” and which you consider “needs.” While everyone’s current financial status may be different, your break down should work something like this:
- First, pay for necessities such as rent or recurring bills.
- If you can, automatically set aside at least 20 percent of your income toward savings and investments.
- Next, allot half of your income for essentials: groceries, housing costs and transportation.
- The remaining money is left for “non-essentials” like entertainment and travel, but chances are you can tighten up this portion of your monthly budget.
Pay Down Debt
Many people in their 20s carry debt—often a combination of student loans, credit card balances, auto loans and perhaps even the mortgage on a starter home or condo. Paying down your debt in your 20s will set you up to achieve your future goals; letting debt amass through your 20s means you’ll have a bigger mess to clean up at some point in the future.
Here’s some advice from Andrew Housser, co-founder of Freedom Financial Network, based on his own habits: “Ask myself, ‘Where do I want to be 1, 3 and 5 years from now?’ Then try to take actions to help make that a reality.” The takeaway here is that it pays to look ahead. Commit to strategically paying off your debt now rather than later. Years down the line, you’ll thank yourself.
Build an Emergency Fund
It’s easy to feel somewhat invincible in your 20s. But emergencies can strike at any time. Your car could break down. You could face a layoff, or a medical emergency. It’s important to save at least three to six months’ worth of living expenses in a separate emergency fund, in addition to your general savings account.
Start Saving for Retirement
Retirement is probably the furthest thing from your mind. After all, you’ve just started your career. The difference between starting your retirement savings in your 20s versus your 30s is actually drastic thanks to the effects of compound interest.
As Business Insider outlines, someone who starts saving $200 per month into a retirement account at age 25 will have $96,000 amassed by the time they reach age 65. Assuming the same rate of return, 6 percent, someone who does the same at age 35 will only have $72,000 saved by retirement time.
Read Up on Personal Financial
Financial advice and news is more accessible than ever, thanks to the plethora of websites and apps available. Set aside a little time each week to study up on important financial terms, market trends, advice and tips, and more. Be sure to subscribe to a number of sources covering money-related topics. It’s valuable to get multiple perspectives so you can match their advice to your present needs.
These five tips will help you get started on mastering money in your 20s and beyond.
Published on 21 Aug 2018 at 03:16PM