5 Good Financial Habits for 20-Somethings
If you are in your 20s, you are at the perfect age to start prioritizing your finances. Whether you just got out of college, or you have been working for a few years, planning for your financial future early can help set you up for a financially stable life down the line. You are young enough that saving money shouldn’t be everything you think about: You still have time to have a little fun. Still, the earlier you start saving, and the faster you pay down debt, the better opportunity you will have to accrue more money later through interest and long-term saving. While you are still young to worry too much about retirement, it’s never too early to start preparing for all aspects of the future. Here are five habits that you should learn and prioritize now in order to be financially secure later.
1. Live within your means
One of the most important financial habits you can start now is to learn how to live within your means. If you consistently spend more than you make, you will set yourself up for debt or financial hardship later. According to the The 2012 National Financial Capability Study, 19 percent of individuals reported that their household spent more than their income within the last year, and that didn’t even include the purchase of a new home or other large investment. Instead of spending recklessly, make sure that you spend only as much as you can afford. Make a budget, determine how much you need to spend on bills and how much extra income you have, and then stick to a budget.
2. Prioritize your career
If you make your career a top priority in your 20s, you will be in good financial shape by your thirties, and beyond. Having a steady job will allow you to have a steady income, and hopefully, to move up in your career and continue to get raises. You will need a steady income in order to thrive financially, so be sure that you work hard, even in your 20s. Also be sure that you learn new skills, and make yourself as marketable as possible. You don’t need to stay at the same job in order to be financially secure, but you do need to have skills that are desirable to employers. Also focus on getting along with your coworkers, and taking on extra work as often as possible; these two practices will help you in the long run.
3. Pay down debt
If you have debt, get rid of it as quickly as possible. Some debt might have been necessary in order to succeed (like school loans), but you can still focus on paying them as quickly as possible. You should pay high-interest debt first (like credit cards), because this type of debt will cause you to lose the most money. The quicker you pay down debt, the more money you will have to put towards savings, and even disposable income. Also, paying down debt affects your credit score, which can affect your ability to get a loan, and some employers even look at your actual credit report before offering you a job.
4. Save, save, and save some more
Once you have your debt under control, you should start putting money away towards savings. Generally, you should first build up your emergency fund (you should probably have enough money to cover your bills and needs for at least six months, but possibly more). Easy ways to build up your emergency fund include buying a less expensive car, eating out less, and saving a raise or bonus.
In addition to your emergency fund, you should start saving for retirement: although starting in your 20s might seem unnecessary, you should really start as soon as possible. Talk to your employer or human resources department to see what type of matching program they offer, and also, research retirement savings ideas that you can do on your own.
5. Be content with what you have
This is one of the hardest financial habits to establish, because all of us compare ourselves and what we have to others. However, yearning for what other people have can easily lead to overspending, and if you can curb the habit of wanting what others have in your 20s, you will have better luck saving money for the rest of your life. On the one hand, if you are going to spend frivolously, your 20s is probably the right time to do it, because unless you go completely crazy, you will still have time to recover. On the other hand, do you want to spend the next five, ten, or fifteen years recovering from serious impulse purchases, or would you rather be content now, spend a little money on entertainment and fun things that you want, but save more so that you can have a more financially stable life later?
If you can make an effort to learn these five financial habits now, you will be in a great position to make smart financial decisions in the future. Your 20s should be a fun time, but making smart financial decisions now will let you have fun long-term, which is even more important.