The beginning of adulthood! For many, this transitional phase means looking forward to sleeping on the weekends, disliking loud noises and crowds, and getting excited about splurging on home decor items. But apart from these, being in the 20s also means building a solid foundation for your financial future. Whether you decide to be single or build a family in the decades to come, establishing wise money habits while still being a young adult will protect your hopes, dreams, and goals later in life.
Here are the financial moves you can do in your 20s that you’ll thank yourself for later.
If you feel that “living within your means” is a lot easier said than done, then don’t worry, you are not alone. A lot of people truly find enjoyment in spending money on shopping, eating out, traveling, socializing, and any other form of entertainment. However, constantly spending more than what you are earning will inevitably catch up to you, and leaving you set off for rough financial sailing.
One way to live within your means is to create a budget and stick to it. You can start it by allocating 50% of your income to necessities such as food, rent, and transportation. Then use 30% of your income for your wants. This way, you won’t be feeling that you’re depriving yourself too much. Finally, 20% of your money must be put away for your future self.
Ideally, you must save at least 20% of your income. However, for many people in their 20s, saving money can be tough, let alone as big as 20%. Hence, if you’re having difficulties finding money to save, start with a small amount each month and just work your way up. No amount is too small to save. Putting away even just 5% of your income is better than nothing.
Before you undertake a credit card journey, it is a must that you get educated on the fundamentals first, such as what are the factors that go into your credit card and how to read a credit report. Remember, a credit card will do wonders for your financial situation if used wisely. Understanding how to use it correctly will help you in making major money decisions like buying a car or a home.
Time is money. The earlier you start, the more time your money has to grow — giving you a much bigger cushion when something goes wrong. Saving up between three to six months’ worth of your living expenses is a smart way to prepare for a financial emergency.
Your emergency fund can be used during unfortunate occasions like a job loss, unexpected medical expenses, and home repairs.
An earning passive income stream is a definitive way to increase your money with minimal activity or little daily effort on your part. This can help you achieve your financial goals faster.
Some passive income ideas are rent out a room in your house, start an online business, invest in different investment vehicles, and engage in affiliate marketing activities, among others.
No matter how busy being a 20-something can get, taking the time to invest in yourself is essential. Your future self depends on it. Most of the time, what you earn is determined by the level and relevance of your knowledge and skills. Educating yourself, along with investing in your self-confidence, health, and relationships will open a lot of doors to financial success.
Although your twenties are a time for exploration and living in the moment, it is also a time for discovering your financial independence, increasing responsibilities, and planning for your future. That’s why when it comes to timing, the younger you are to buy insurance, the better. Not only it is cheaper when you’re young, but it will also protect your future self from debts and other unexpected financial liabilities.