Your 20s is an exciting time, with new opportunities and challenges. When you are starting out, managing finances can be daunting, but by applying strong financial strategies and good habits, you can set the foundation for future financial success. Start thinking about the future and how you should handle your money. Here are five things to do with your money in your 20s.
- Establish a budget and live within your means. Start by tracking your expenses to see where your money goes. It sounds simple, but to make the budget work, you must spend less than you make, including what you set aside for savings. You may have to make adjustments as you go along, but that’s okay as long as you are realistic and learn how to stick to an overall plan.
- Start an emergency fund. Things happen. Cars break down, jobs are lost, medical bills pop up. Have an emergency fund set aside so life’s little surprises don’t leave you unable to pay your bills. Set up an automatic transfer to your savings each paycheck. Allocating that money to savings right away means it’s less likely you will spend it. A good first savings goal is $1,000. Once you save $1,000, the next emergency fund savings goal should be three to six months of living expenses.
- Understand how credit works. Check your credit score each year to get an idea of where you stand and correct any potential errors. If you don’t have credit established already, your 20s is a time to build good credit history, but be very careful and don’t take on too much. If you have a credit card, pay your balance in full when you can. If that’s not possible, try to pay more than the minimum payment and try to keep your balance below 30 percent of the credit limit. Compounding interest can slow you down, so try to pay more than the minimum payment whenever possible.
- Learn practical skills. Paying for convenience is fine, but it can add up quickly. Commit to learning a few practical skills that can save you money in the long run. Knowing how to cook a few basic meals, changing a tire or filling out a tax return are just a few examples. Don’t allow not knowing how to do something force you to pay for service.
- Start retirement planning now. If your employer offers a 401(k) plan, open an account and invest at least enough to take full advantage of your company’s matching contribution. The sooner you begin saving, the more time your money has to grow. If your company doesn’t offer a 401(k), consider other options like a Roth IRA. Not sure where to start? TFCU has financial advisors that can help get you started.