Using your 20s to learn to effectively manage your money is important in leading a financially healthy life and will help set you up for a financially secure retirement. Below are concepts to master by the time you turn 30:
1. Stick to a Budget: Many 20-somethings have read about creating a budget, possibly outlined theirs, and/or delved into a budgeting app or two. However, very few of those individuals actually stick to a budget. Once you are 30, now is the time to start holding yourself accountable for where every dollar goes. That means saying no to any small or large expense that will prevent you from meeting your savings goals. For example, if you only budgeted $10 a week for coffee, you will cut yourself off after the second latte.
2. Stop Spending Your Entire Paycheck: Thomas J. Stanley, author of “The Millionaire Next Door,” posits that the majority of self-made millionaires drive used cars and live in average houses. Needing to have the latest, greatest item is more likely to leave you drowning in debt than thriving. Turn off the TV or close the Instagram app if you feel pressured to buy. Choose to compare yourself to the peers who are saving, not spending.
3. Write Down Your Financial Goals: You are more likely to achieve a goal if you write it down and solidify a concrete plan. Create a budget where you set aside a certain amount every month to your savings goals, and stick to it.
4. Understand Your Student Loans: Millennials hold a tremendous amount of student loan debt, and many did not fully grasp the repayment process. Six out of ten millennials reported underestimating monthly payments. Also, if you are considering returning for more schooling, think long and hard about the employment prospects and earning potential before you incur debt. Ask yourself if the return is truly worth it (will the degree increase your earnings to pay off the debt?) before you sign up for a loan that is impossible to discharge, even in bankruptcy.
5. Stay Active with Managing Debt: Many people become complacent about debt--with all of the mortgages, student loans, credit card debt, and auto loans--debt starts to feel natural, even expected. However, you do not need to spend your entire life paying off debt. For more information on handling debt, see this blog post.
6. Build an Emergency Fund: It is recommended that you save at least six months’ worth of living expenses, in case of unemployment or a major unexpected expense. Not having to take on debt every time you experience a setback will save you a lot of money on interest, especially if you would have taken on credit card debt. For more information on building an emergency fund, visit this blog post.
7. Save for Retirement: Plan to save 15% of your income towards retirement, but ideally more. You should be contributing at least enough to a 401(k) to receive a matching contribution from your employer, provided that they offer one. If they do not offer one, you will want to set up your own--either a Traditional or a Roth IRA-- click here for details. Saving for retirement in your 20s will put you far ahead of those who do not, due to the magic of compounding interest.
In truth, age 30 is already a bit late to begin employing these concepts, but better now than never. If you haven’t started yet, use this time to kick yourself in high gear. If you are interested in working with a financial advisor, please contact us at 515-557-1860 or email us at email@example.com. We are a fiduciary, investment management and financial planning firm serving clients from across the U.S.