Mary enjoys sharing tips, most of which she's tested, about any subject that makes some part of human life better or easier.
Your 20s are the best time to start making smart money decisions. These decisions have long-term benefits that can help you achieve future financial success. It’s understandable that managing your finances for the first time might be overwhelming. You’re getting exposed to the world of daily expenses, major bills such as housing and health care, heavy debts, and long-term goals, not to forget talks about saving for retirement.
However, you could choose to chart a smoother course for your finances. And the best time to start is in your 20s. Here are 8 crucial financial decisions you would have to make in your 20s.
1. Learn a Marketable Skill
The best way to deal with being broke or not having enough money to take on projects you love is to increase your earning power. This might not necessarily be associated with your job. It’s more about important skills that can set you up for much more relevance in today’s world. There are many skills available to learn today, for free even. You could choose one that appeals to your personality. Some valuable skill suggestions include copywriting, UI/UX design, programming, music production, directing, digital marketing, affiliate marketing, etc.
2. Have a Budget and Stick To It
A budget is a major step to getting your finances in order and tracking the inflows and outflows of money in your bank account every month. Creating a budget today has been made easier than ever. There are several online resources and apps that can help you. As you go on after creating one, you’re at liberty to tweak it as your spending habits or income change. You also have to ensure that you stick to your budget. Don’t spend more than you’ve planned for.
We live in a world of unexpected twists and turns. If nothing has ever proven this, then the coronavirus pandemic should. Anything can change in a minute and you have to be prepared for this. In your 20s, you should start being responsible for protecting yourself and all your stuff from critical changes. Getting insured is a very good way to do this. Insurance can save the day in cases of horrible incidents. Insurance steps in if there’s a scenario of being in the emergency room or a fire outbreak in your apartment.
4. Have an Emergency Fund
While getting insurance is great, you can’t rely on it alone to take care of all your problems. Having liquid savings at hand can act as added padding to the jabs of life such as medical bills or car repairs. Sometimes, home insurance might be of little to no help. However, an emergency fund can save you from going into debt or, worse, asking your parents for the money. You could decide to save enough in your emergency fund to pay three to six months' worth of expenses. Aim to save up at least 10% of each paycheck until you reach your goal.
5. Start Saving for Retirement
Retirement always seems like a very long time from now. But the earlier you start saving towards it, the better. This is because of an interesting principle called compounding. With compounding, time can be a boost to your retirement savings account. You need the right mindset for retirement savings. Instead of seeing it as a minus from your paycheck, choose to see it as automatic payments to your future self.
6. Pay Off Your Debt
Your 20s is the best time to start paying off debt. This includes student loan or credit card debt. Make it a priority to pay them off. Debts are bad for your credit. For instance, it could increase your utilization rate (the percentage of credit you use), which can result in a lower credit score. There is also a possibility for lenders to consider you a high-risk borrower when you have a large amount of debt. You most likely might not qualify for other financial products. A section of your budget should determine how much money you use to repay debts every month.
7. Quit Running Back to Mom and Dad
It’s always tempting to run back to your parents when you encounter one or two financial hurdles. But you don’t want to be that crybaby. You would also show how much you love them when you prove that you’ve set them free of your financial responsibilities. You must learn to and decide to let go off of your parents' payroll and stick to your own. To do this, you obviously need a job, you’ve to get insurance as well as an emergency fund. Of course, there are moments when it’s totally unavoidable to get help from your parents. However, you’ve to make those moments fewer and also approach them maturely and responsibly.
8. Put Important Financial Documents in Order
Your key financial documents must be well arranged and easily accessible. Your parents shouldn’t have the responsibility of holding them for you anymore. Get your birth certificate, Social Security card, and other official IDs in your possession. Other important things to keep track of are your banking and investment accounts, household bills, and insurance policies, along with any online usernames and passwords.