Smart Financial Decisions To Make In Your 20s

October 27, 2017 Financial , OTHER

Volkan Olmez photo

 

By

Susan Ranford

 

Your twenties will determine your financial future. This decade brings a number of “firsts” in life, like your first home and your first job and first real paycheck.

 

It’s an exciting time, and a time to become financially independent, but you must exercise some care and avoid the temptation of unnecessary overspending.

 

Your financial decisions during this first decade of your work life will raise or sink your ability to go for early retirement. It will also determine your capacity to put your kids through college. It might determine how equipped you are to pay for your home in full before you turn sixty.

 

Don’t get carried away and think that you still have plenty of time before these things come to fruition. Time flies, and before you know it, you’ll be looking forward to the end of your career and retirement.

 

Manage your finances well from the beginning work life, and use this as a guide of what to do as you actually start making money.

 

 

 

Monitor your spending and set goals

 

If you ignore your spending behavior, you can easily go off track. You don’t want to check your bank account as the month draws to a close and have nothing to lay your hands on.

 

The key to avoiding this is to start budgeting for your needs and sticking with your budget. There are tools available to help you with budgeting if you are finding it difficult to properly manage your spending.

 

These tools can give you estimates of your spending habits. They are really handy for helping you know what to eliminate or cut down. Once you can understand and properly manage your spending habits, you’ll be able to budget and plan for your current and future expenses properly.

 

 

 

Do not spend more than you earn

 

It sounds simple, but a lot of people don’t follow this: spending less than you earn will make it easier for you to save. If you form the habit early enough, you’ll be in a good place when you have to buy big things like a car or house.

 

Spending less than you make will also help you avoid credit card debt. Although your credit cards can assist you prepare for huge purchases, if you don’t do it right, you can land into financial trouble.

 

You also should be making smart purchases. You can save on things even as necessary as shoes if you shop around. One thing a lot of people miss is that smaller retailers typically have lower prices than big companies because they need to attract new customers.

 

This is especially true online. Shop around when you’re making purchases. Five bucks here and there goes a long way over a decade.

 

 

 

Start clearing off your student debt

 

Student loans are one of the key deterrent for long-term financial goals.

 

You need to start payments on time to ensure that they don’t get in your way. The best way to go is to start paying a bit more than your minimum payment. This will minimize the period you have to pay back the loan and also lessen the interest you’ll pay for them.

 

If the interest is low, however, it may be unwise to want to clear them off all at once. It is more essential that you make regular contributions as soon as they are due. Pay what you can afford, but make sure you’re paying at least the minimum.

 

 

 

Save for retirement

 

Don’t postpone what you could do now until later.

 

Start with as little as one percent of your monthly income and increase to two, three, ten and gradually increase it as you see fit. The most significant thing is that you are saving something on a regular basis. You can set up automatic withdrawals from your bank account to make it easier to remember.

 

Enroll for a 401(k) retirement plan at work if you have one at work. Also, try to leverage the advantage of your employer’s match program if one exist. You can also set up automatic increase of about 0.5 percent monthly or annually as required.

 

 

 

Make regular contributions towards a Roth IRA

 

You may also want to contribute to a Roth IRA retirement account. These forms of savings are taxed as soon as you pay them. This makes it easy for you to withdraw them tax free once you reach the maturity age.

 

To be able to enroll in the program, your yearly income must be less than $116,000 as an individual, and $183,000 income as a couple opening a joint account. Your 20s is the easiest time to qualify for the required income level since you are just starting out.

 

 

 

Use credit cards properly

 

If you make judicious use of your credit card, you will easily increase your credit rating. It will save you tons of money and get you a better interest rate if you have to obtain a loan for car or pay mortgage on a home in the future.

 

Be smart with your credit card and set up payment plan to ensure you pay up on time to boost your credit score. The trick is to only use your credit cards to pay for meagre purchases that would be very easy for you to pay off before the due date.

 

Maybe you already got into some credit issues. Well, now is the time to dig yourself out. The earlier you start, the better your long-term outlook will be.

 

 

 

Stay insured

 

You may be tempted to want to save enough every year by skipping out on health insurance, but that is the greatest financial mistake you could make in your 20s. Any emergency that is not well prepared for could sweep all the saved funds away and put you into debt before you know it.

 

You might think that you’re unbreakable when you’re young. But accidents happen and bad things happen to good people. You could get sick or hurt and not have a way to pay for it. Even if something happens at work, disability coverage is not a guarantee, and you could end up in a legal battle with your company. No one wants that.

 

It’s important to stay covered so you don’t end up holding the bag if something horrible happens.

 

 

 

 

 

Susan Ranford

Susan Ranford is an expert on career coaching, business advice, and workplace rights. She has written for New York Jobs, IAmWire, and ZipJob. In her blogging and writing, she seeks to shed light on issues related to employment, business, and finance to help others understand different industries and find the right job fit for them.

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