Experiencing your 20s during the 2020’s has its benefits, among them the abundance of resources to start your adult financial journey on a better foot than the generations before you. Online budgeting tools, financial planning resources, stock trading apps, and increasingly competitive and transparent lending and credit card options all contribute to the ability to feel more in control of your money than ever before. So where do you start?
Whether you’re living your freelance #vanlife to the fullest or donning a tie every weekday morning, you can abide by the same guidelines to establish and sustain your financial stability and ideally fund your future investments. But to get to that point, make sure to set some guardrails while you enjoy your decade of youth and independence. Here are five simple ways to handle your money while you’re in your 20s that will pay off exponentially for your future self:
1. The B Word: Budget
Take it from those that came before you: if you set a budget and stick to it now, the habit will continue through your adulthood and catapult you leaps and bounds ahead of where you will be if you overlook this important step. When you don’t set a budget, it’s easy to spend what you have and wait for the next paycheck, giving you no reserves and starting a cycle of stress and reactivity. Setting a budget means giving yourself the ability to reward your own hard work when you have the funds to do so. Budgeting will quickly help you pay off and avoid further debt, establish an emergency fund, and help you attain goals such as home ownership sooner in life. There are tons of free budgeting tools available online to get you started, or you can sign up for a free financial consultation service, such as the one State ECU offers our members via BALANCE.
2. Financial Intimacy and Clear Communication
It is incredibly valuable to be in control of your own finances before entering a relationship or shared living situation. You can bring your budgeting tools into the mix and have a firm understanding of where your money goes. Whether you’re intimately sharing a bank account or keeping things separate, it’s always a good idea to make communication around finances clear and set boundaries at the beginning to avoid any confusion. This skill set can help with roommates to romances. It can also be exciting to start a new budgeting and financial goal journey with an existing partner. When you’re all in together, rewarding yourself with vacations and big-ticket purchases is even more enjoyable when you’re sharing the spoils with someone you enjoy.
3. Harness the Power of Compound Interest
You have one huge advantage on your side right now: time. Start a high-yield savings account or open a Roth IRA to begin saving toward retirement. You cannot get these years back when it comes to the power of interest. Setting automatic transfers or diverting your direct deposit paycheck to various accounts can jumpstart your nest egg without you having to even think about.
4. Build your Credit Score
Once you feel solid in your budgeting skills, research a rewards-based credit card so you can build up your credit score. When you’ve saved enough for those big ticket items, pay with your credit card, then immediately pay off the entire balance with the funds you already have because you saved and budgeted. You can earn cash back, travel miles, hotel points, and so much more these days depending on what card you choose. Just always make sure you can pay off the balance before you make the big purchase, or you can start a downward spiral of chasing debt. Building a good credit score will save you money in the long run: a high credit score lands you lower interest rates on large loans and helps you qualify for better loan terms, among other benefits.
5. Set Real Goals
We all tend to rebel against tangible goal setting, but there’s a reason so many successful people advocate for it: it works. Setting goals for your financial future can help you choose your career path, affect your location choices, and motivate you to make real moves to attain those goals. If your thriftiness doesn’t have an ultimate payout, it’s harder to stick to it. But budgeting and saving can be exciting when you watch your money grow and feel more secure every day. Goals can be as little as establishing a respectable credit score to living completely debt free to passive income and independent wealth. Once you realize that financial freedom means the freedom to live as you choose, it doesn’t seem so hard to only go out to lunch once a week for a few years.
All five of these smart money habits fall under two tentpoles to live by in your 20s: only buy what you can afford and start saving smartly. Those two principles will make the transition to your later adulthood much smoother as you deal with mortgages, childcare, investments, orthodontics, etc. Many people would give anything to go back to their 20s and be smarter with their money. You have the power to guide your financial outcomes from the start, and State ECU will be here with the tools and resources you need to be successful.