It can be a lot of fun in your twenties – it’s a time of self-discovery, making new connections, and setting the foundation for your future. It’s also arguably the best time to begin taking control of your finances. From paying off student loans to building a strong credit history, there are many financial moves one can consider making before turning the big 3-0. In this post, we’ll discuss five of them in more detail. Let’s go ahead and dive right in.
#1: Start an Emergency Fund
When you’re in your twenties, life can be unpredictable. You may face unexpected expenses, from medical emergencies to car repairs. To prepare for such events, it’s wise to have an emergency savings fund. Ideally, an emergency fund should cover three to six months’ worth of your basic living expenses. Consider saving a percentage of your paycheck and perhaps putting it into a high-yield savings account or something similar. With time, you’ll likely be able to build an emergency fund that may help cushion life’s curveballs.
#2: Pay Off High-Interest Debt
If you’re in your twenties, it’s a good time to take control of any high-interest debt you may have accrued. It may be hard to recognize how important it is to pay off debts while you’re still young, but the longer you wait, the more the debt will potentially compound, and the harder it will likely be to pay it off. First, list and review all your debts. Next, consider tackling those with the highest interest rates first.
#3: Invest in the Future
When you’re young, it’s easy to believe that you have all the time in the world to save for your future. That’s a fallacy! Time is one’s most valuable asset when it comes to investing. Consider investing in your future now. Retirement planning is a great place to start. Talk to a trusted financial advisor about various options, including employer-sponsored retirement plans, which allow one to put money away in a tax-advantaged account.
#4: Establish a Strong Credit History
Your credit score can influence everything from your ability to rent an apartment to getting a good interest rate on your car loan. If you plan to buy a home in the future, a strong credit history is critical. Folks sometimes consider establishing credit by securing a credit card or becoming an authorized user of a friend or family member’s credit card. If you do this yourself, it’s generally a good idea to pay all your bills on time. Also, consider disputing any errors or issues on your credit report promptly.
#5: Create a Budget and Stick to It
Creating a budget may sound intimidating, but it can be a helpful financial tool. A good budget can help you track your spending, save money, and manage your finances better. Consider creating a budget worksheet – list all your expenses, including spending on groceries, utilities, rent or mortgage, car payments, entertainment, and the like. Deduct the total from your overall income to make sure you’re not spending more than you’re making. Finally, consider allocating how much you plan to spend every month per category and try your best to stick to it.
The financial goals you set during your twenties honestly set the tone for the rest of your life. Carrying out some (or all) of the suggestions above have the potential to improve your future financial well-being. Think about setting aside time every month to review your finances and remain committed to continually improving your financial situation. By taking control in this area, you’ll potentially create a better future for yourself.