Your 20s are a crucial time when it comes to making sure your financial future is a bright one. Some people believe they should put off thinking about finances until they land their “real job” or have a family to consider. This is a big mistake. The best time to begin to consider your financial future is now. Here are some essential tips.
Learn how to properly budget now
You shouldn’t wait until you have a lot of expenses to worry about before creating and adhering to a proper budget. When it comes to lifelong financial skills, budgeting is number one. A good place to start in your 20s is with a classic 20/50/30 budget. In this budget strategy, 50% of your income goes toward the essentials – your fixed expenses. This includes housing payments, food, utilities, transportation costs, medical bills, and debt payments. Next, 20% of your income should go toward savings, for instance 10% to a retirement account and 10% to a general savings fund. The last 30% is your discretionary spending, or “fun” stuff if you will. These are variable expenses that change from month to month. This is a very basic budgeting technique, but it’s very solid for a beginner. For more tips on budgeting, check here.
Get control of your debt
Saddling yourself with debt at a young age is one sure way to dim your financial future. While some debt is unavoidable for many twentysomethings – like some credit card debt and student loans – it’s vital that you do whatever you can to pare down debt. Try to pay off credit card debt first, as this is the most volatile (higher, more fluid interest rates). If you have too much student loan debt to handle, consider income-based repayment plans that will allow you to pay the bare minimum until you have enough cashflow to make regular payments.
One way to prevent yourself from falling further into debt is to create an emergency savings fund that can be used for life’s curveballs – home repairs, medical bills, car troubles, etc. If you have a solid emergency fund, you won’t be forced to go into debt paying for things you simply can’t avoid. A solid emergency fund for a twentysomething is between $5,000 and $10,000.
Start investing in retirement today
Yes, today. Sure, you’re decades away from retirement, but the best time to begin investing is as soon as possible. Investments compound, meaning they increase exponentially over time. The earlier you put in your initial principal, the more you’ll have accumulated in interest by the time you’re ready to retire. Here are some of the best investments for young people.
Buy, If you can afford it
Buying a home brings tax breaks and allows you to build equity, and real estate is a sound investment in today’s economy as long as you don’t buy above your means. Not only that, but owning a home puts you in a better spot to affect your local community.
Your 20s are a make or break time in your financial life – you’re just starting to make enough money to begin to save and invest and you have fewer financial obligations that prevent you from doing so. Don’t make the mistake of waiting for the “perfect time” to begin planning for your future. The time is now.