When you are in your twenties, it may seem you still have a lot of time ahead to think about financial security. People prefer to think about such matters when they settle down. You may be just out of college, still having your student loans to pay off, and making just enough to make ends meet.
Although you may believe you don’t have many assets to manage, there are steps you should take to lay a good foundation for your financial stability as you get older.
Why You Should Adopt Good Financial Habits in Your 20s
Not many young people start thinking about their financial future. They suppose that it’s too early as they only begin their career after getting a degree. Perhaps, you will land your dream job in the nearest future and save enough without too much effort.
However, real life is often different. When you are in your 20s, you already establish habits that will follow you for the rest of your life. You may start your first full-time job, get married, purchase a house, or travel.
If you start adopting good financial habits earlier in life, it will be easier for you to prepare for any curveballs of life. Every person is unique, so you may have your own financial goals.
If you are feeling overwhelmed and confused about finances, it’s helpful to follow some suggestions for small milestones to hit at particular points in your life. These suggestions may be adjusted to your lifestyle to fit your personal circumstances and help you reach your goals.
5 Finance Goals for Your 20s
#1 Educate Yourself About Personal Finance
It’s really weird that we still don’t get any formal personal finance education in school though we live in the modern age. Children don’t have these classes and don’t talk about finances with their parents.
They aren’t prepared to deal with money management and personal finances. Knowledge is really powerful and you need to educate yourself about personal finance if you want to achieve success and avoid mistakes.
How can you become savvy with your money? Read relevant materials and articles, and search for personal finance blogs and podcasts.
There are some useful websites such as Mint.com Blog, Get Rich Slowly, The Simple Dollar, or Financial Samurai. Besides, you may find some personal finance-related classes on Coursera.
#2 Get Out of Debt
Of course, you may not be able to become completely debt-free by the time you turn 30, but you should use the time wisely. Even when you are young, you can make certain steps to reach financial independence faster.
Work toward repaying the credit card debt you may have. Some consumers have multiple credit cards and often max them out. You may turn to borrow money from cash app in times of crisis but having too much debt can be harmful. It can damage your credit history.
If you learn how to manage existing debt and repay it, you will be able to concentrate on your financial aims and accomplish them.
For instance, you may want to purchase your own home, get a new car, or start a family. Set up a debt payoff plan to help you reduce the payments and eventually become free from them.
#3 Track Your Credit Score
This is another important goal. Tracking your credit score should start while you are young. This is an ongoing duty that you should devote some time to.
If you have long-term financial targets such as buying a new auto or becoming a proud homeowner, your credit score is essential. You may need to have good or excellent credit even when you apply for a job or rent apartments for rent in Raleigh.
The financial moves you make in your 20s may affect your ability to take out credit later in life. Hence, you need to be a responsible borrower straight away.
According to statistics of 2018, 61 percent of USA adults believe they would pay for a theoretical $400 bill using cash, savings, or a credit card that would be paid off in the future statement.
Any missed or late payment will damage your rating. It will take a lot of time to rebuild it. Thus, a good idea is to start tracking your credit rating by requesting a free annual credit report.
#4 Establish an Emergency Fund
We’ve all experienced unforeseen financial emergencies – a broken appliance, a sudden medical bill, a damaged car, or a loss of income. Small or large, these unexpected costs often feel like they hit at the worst times.
According to the Consumer Financial Protection Bureau, setting up a dedicated emergency or savings fund is an important way to protect yourself. Besides, it’s the first step you may take to begin saving. Many people aren’t sure how much they should have in this fund.
The sum depends on your situation. You may think about typical unforeseen expenses you’ve had in the past to calculate the average amount.
It may be hard to set aside funds if you live paycheck to paycheck but following strict rules will provide some financial security and options for regular savings.
#5 Contribute to Your Retirement
We all want to retire comfortably. The key here is to begin putting aside cash in your retirement account in your 20s.
Although it seems too early and even not cool to think about your retirement when you’ve just graduated and started “real life”, you need to look ahead and plan your retirement now. As soon as you start the first job, it’s time to make contributions to your retirement account.
The more you save and invest when you are young and active, the more funds you will have in the long run.
Begin by making contributions to your employer’s match until you get rid of debt. After that, you may want to save 15% of your income to a traditional IRA, a 401(k), or Roth IRA each year.
The Bottom Line
You should be proactive while you are young and have a lot of energy. Set your own goals and follow these strategies to strive for success. Financial stability isn’t the thing that comes all of a sudden.
You need to improve your financial literacy, educate yourself about personal finance topics, and increase relevant knowledge to boost your confidence in finances.
When you create a budget, set up a debt repayment plan, and maximize your savings, you will be able to reach financial stability and make smart monetary moves. It certainly takes dedication and effort but it’s worth it.