When it comes to spending your money, it’s better to be safe than sorry. But not all twenty-somethings are ready to hear those important money tips to help them keep more cash in their pockets. There are plenty of mistakes you are going to make in your 20’s, doing your best to avoid those that revolve around fiscal responsibility can really help you out in the long run.
That’s probably easier said than done, of course, as twenty-somethings are focused on finding a good job that pays the bills with a little extra left over to enjoy life to the fullest. This guide for starting on the road to financial success should be your template for becoming better prepared to manage your money as you get older and your long-term life goals come into sharper focus.
1.Renting versus Owning
As you’re starting out with life, you’re going to rent your first apartment or house just so you can get on your feet, get a good job, and establish yourself. But you don’t want to rent for too long, because you’re just giving that money away and not putting it into a tangible asset. Sure, it might be tougher to buy in your 20’s if you’re living in Los Angeles, but for those markets where the price of a home is a little more reasonable, you should try to invest in buying a home so you can build equity.
2. Your Credit Score
When you’re in your twenties, a credit card can become an enemy instead of an ally. You apply for your first credit card (or more) and end up piling up serious debt that will damage your credit for years to come. Even those twenty-somethings who are responsible with their spending may not be familiar with the concept of credit utilization, which can also have a detrimental impact on your score.
3. Investing Too Late
You may not want to think about retirement in your 20’s but you should. That way you can start to create an IRA or put money into a 401(k) so you can begin building that nest egg for later in life. If you manage to put away even a little bit on a routine basis, you can put that money to work for you and you won’t need to invest higher amounts as you get older and closer to retirement. This way, it’s a gradual process with a higher upside.
4. Student Loan Debt
Too many twenty-somethings will decide to pay down their student loans ahead of putting money away for their future. In fact, too many of them are making that exact choice – put the money towards their debt or their retirement. Focus more on the latter first while whittling away the former.
5. Set Some Goals
What is it you want to do with your life? Buy a home? Start a business? Purchase a new car soon? When we set goals for our finances, it’s easier to save. Saying you want to have $300,000 by the time your 30 isn’t really a tangible goal. But placing a more specific target of, say, $25,000 to travel the world by the time you’re 30 is something you can work towards and plan for.
6. Invest Hard
When you’re in your 20’s you don’t want to play it safe with respect to investing. You’re young enough to be a little more aggressive and bolder in your savings strategies. That way, if you lose some, you still have plenty of time to make it back versus being in your 50’s and much closer to your retirement age. So, take some risks now, they could pay off significantly for later.