The 5 Best Financial Moves You Can Make in Your 20s
Beyond starting your career and planning some epic adventures, your 20s are a prime time to cultivate smart financial habits. After all, what you do in your 20s lays the foundation for your financial health in the long run. With 62 percent of millennials living paycheck to paycheck, it’s crucial to consider how the choices you make now will influence your financial future. From eliminating your debt to figuring out how much you should save in your 20s, here are five personal finance tips to set you up for long-term success.
1. Establish a Budget
No matter what your salary amounts to in your 20s, it’s important that you come up with a budget that will allow you to pay your bills and save. Without a budget in place, you may end up overspending on frivolous items, like too many Starbucks lattes or take-out deliveries. In fact, the average 25- to 34-year-old reported spending $2,008 per year at coffee shops and an average of $2,800 per year on restaurants, with millennials ordering out more often than other generations. While nobody is suggesting you stop drinking coffee or never order food, it’s smart to know when a good thing is becoming a bad habit. By charting out your daily expenses and recurring monthly payments, you’ll know exactly where your money is going, and thus where you might be able to cut costs. You’ll then be more equipped to consider your short-term and long-term savings goals, including saving for a down payment if you ever hope to own your own home.
2. Make a Debt Repayment Plan
From student loans to credit cards, debt is a burden for most Americans, and young adults are no exception. Millennials carry an average of $27,900 in debt, not including mortgages, and Gen Z have an average debt of $14,700. To prevent your debt from growing due to interest and/or late payments, construct a debt repayment plan, which may include setting up automatic payments. You might also consider joining programs that can help lessen the burden, such as the Peace Corps or Americorps.
3. Start Saving for Your Retirement
Retirement might seem far away now, but it creeps up quickly, and saving early will benefit you tremendously in the long run. The sooner you start funneling money into a 401(k) or other retirement account, the longer that money has to accumulate interest and grow into a sizable nest egg that will support you in your golden years. If your company offers a 401(k), don’t hesitate from participating by having your contribution automatically deducted from each paycheck before taxes. The general rule of thumb is to try and save between 10 to 15 percent of your income for retirement in your 20s.
4. Build a Rainy Day Fund
A rainy day fund is just another term for an emergency fund, or money you can access if you suddenly lose your job or run into some unexpected expense. With an estimated 61 percent of millennials having less than $500 tucked away for emergencies, it’s easy to see how credit card debt can accumulate quickly when there’s no other choice to cover unforeseen costs. The standard advice is to put away three to six months’ worth of essential living expenses and take an oath not to touch the money unless you absolutely have to.
5. Improve Your Credit Score with the SmartCredit System
Having a healthy credit history is crucial for many of life’s milestones, from being approved for a home loan to being approved to rent an apartment, to even getting hired for a job. Yet, almost six out of 10 millennials say they’ve been rejected when applying for credit cards, mortgages, car loans and other financial products. While it may feel like the odds are against you in trying to build up your credit history and improve your credit score, with a few financial planning tweaks, you can get there sooner than you think. The SmartCredit system is designed to help you control your future credit score with tools that let you track all your scores with simple charts and an actionable plan to pay down debt and work towards improving your score within 120 days. The SmartCredit System doesn’t just show you what is hurting and helping your credit score, but also reveals specific steps you can take to improve your situation.
Learn more about how SmartCredit can help you plan for the future and make smarter financial moves in your 20s.