Your 20s will be some of the best years of your life. You’ll meet lifelong friends, experience new things and places, and learn more about yourself in general. Being in your 20s is also the best time to focus on establishing a strong foundation with your finances.
It’s a great time to make financial mistakes, but it’s even a better time to focus on getting on the right track so you can avoid having to struggle with money as you get older. Between going to college, establishing a career and starting a family, you’ll start to develop money management habits that will have short and long-term effects on your future.
I’m still in my 20s, but I feel grateful that I’ve learned so much about finances so far and I can apply the good money habits I’ve developed for many years to come. Whether you’re 21 or 28 (or even a bit older), here are some key financial moves you’ll want to consider making sooner rather than later.
1. Pay Off Debt
Many 20-somethings have some debt whether it’s student loan debt, a car loan, credit card debt etc. Being in debt can be stressful especially if you are just starting your career or can’t afford to make payments. It’s easy to want to put paying off debt on the back burner and apply for deferment programs if you have federal student loans.
However, one of the best things you can do in your 20s is pay off your high-interest debt as soon as possible. If you have a mortgage, some people will argue that you shouldn’t prioritize paying it off early and I agree with that sentiment. Mortgage rates are usually low compared to other types of debt and if you put a decent down payment down on your home, you should have some equity to start off with.
I don’t have a mortgage yet, so my husband and I are on a mission to pay down our student loans and other types of debt because the payments tend to eat up a lot of our income. When it comes to paying off your debt, I recommend employing a strategy that will allow you to tackle each debt one-by-one whether you want to start paying off your highest interest debt or a low balance loan. Make extra payments when you can and stick to a budget so you can prioritize debt payments.
2. Start Investing
Investing should be a priority in your 20s even if you have debt. It’s important to invest if you ever want to retire some day and improve your financial situation. They key to successful investing is starting early so time can do its thing. If you contribute to your 401(k) and/or Roth IRA and other funds consistently year after year, your contributions will begin to grow thanks to compound interest and this requires little maintenance or effort on your part.
I never had an employer who offered me a 401(k) plan so I started a Roth IRA (individual retirement account) with Betterment. I highly recommend Betterment for anyone who is new to investing because they are a trusted robo advisor and their online platform is really easy to use.
When you sign up for Betterment, you answer a few questions about your income and goals, then they actually I like how investing early can provide a great source of passive income in the future so no matter what anyone says, don’t put this off until you get older.
3. Keep Living Expenses Low
It’s much easier to keep your living expenses low when you’re younger. I know it can be tempting to splurge and give in to lifestyle inflation especially when you get raises at work or land a higher-paying job, but it’s important to enjoy a low-cost lifestyle before you start dealing with extra responsibilities like having kids and a mortgage.
When I graduated college, I was committed to keep living like a ‘broke college student’ for a few more years and I’m so happy I kept my living expenses low and simple. I learned how to adopt a frugal lifestyle and avoided getting into even more debt.
You might want to try driving an older car to save on transportation expenses, living in an affordable apartment with roommates, or cooking more at home to keep your living expenses low in your 20s.
4. Stop Using Parents as a Piggy Bank
It’s so easy to fall back on your parents financially when you’re younger. When I was in college, I remember my parents paying my rent a few times out of the year and giving me gas money here and there. Most parents are happy to help if they have the means to do so but that doesn’t mean you should take advantage of it.
In your 20s, it’s important to make an effort to ween yourself off depending on your parents as a financial crutch. There’s nothing wrong with living with your parents when you are trying to save money and get on your feet, but it’s not good to get into the habit of expecting them to take care of you especially when you’re an adult.
For starters, it’s not reliable to depend on your parents for money when you could be making your own and solving your own problems. If you start trying to be more financially independent now, you’ll improve your chances of being more stable and stressing less about money in the future.
5. Establish a Solid Emergency Fund
It may take some time to save up thousands of dollars which is why it’s best to start now. When I was 19, I got in a minor car accident that costs me at least $1,000 in fees and tickets plus repairs for my car. I had to take out a loan to pay that money because I didn’t have any savings.
Having emergency savings lined up is important because you never know when an unexpected expense will pop up. There is no rule regarding how much money you should have saved for emergencies, but you should choose an amount that will at least cover 1-3+ months worth of expenses. Some people have emergency fund balances that could cover expenses for an entire year.
Open a high-yield savings account (I use CapitalOne 360) and begin making regular contributions or set up automatic transfers. If doesn’t matter if you are saving $20 per month or $200 per month. Every little bit will add up when you encounter an unexpected expense.
6. Make Sure You’re Properly Insured
Don’t make the mistake of being uninsured! You are not invincible and there are a few types of insurance that you absolutely need to have. Auto insurance and health insurance are the two that initially come to mind because they are a requirement.
If you are a renter, you can look into renter’s insurance or home owner’s insurance if you own a home.
You may or may not need life insurance but I chose to sign up for a policy because I’m a mom and have a dependent. If you have a lot of student loan debt, you may want to sign up for life insurance as well since most student loans can’t be discharged even in death.
Being uninsured can cost you a pretty penny. Plus, insurance can protect your finances and give you peace-of-mind when you don’t know what the future holds
7. Consider Investing In Yourself
Investing in yourself can pay off tenfold. Attending college and getting my journalism degree was one of the best things I did do invest in myself because it helped me learn more about the industry I wanted to work in and earn more money. We spend money on so many non-necessities that we don’t really want to need each month.
It’s important to budget for things that will enhance our skills and provide us with opportunities and connections. Whether you want to take a course, attend a conference, or pay for training, investing in yourself can help you develop marketable skills that you can use to increase your income.
8. Build Your Credit History
Don’t forget to start building your credit in your 20s if you haven’t already. I got my first credit card at 19 after I learned how to properly use credit cards and I’m so glad I did. Having a good credit score comes with its perks like low mortgage rates for example.
It takes time to build good credit though so it may take a few years to improve your score as long as you avoid getting into debt and carrying high balances on your credit cards
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