Your 20s are a time of exploration and growth. You’re starting to learn more about who you are, what you want out of life and you might even be thinking about your career and a family. As you’re searching for professional jobs and looking at apartments, you should also start thinking about life insurance, starting a savings account and truly getting a hold on your finances. There are a few steps in particular that are vital for 20-year-olds looking to set the groundwork for a stable financial future.
Make a Plan
While you might want to enjoy your independence, you need to have a financial plan or you might wind up losing that independence and wind up moving in with your parents. Where do you see yourself in five years? Ten years? How about twenty years? Finances will undoubtedly play a part in that plan, so start setting yourself up for success now before you start to get too bogged down with responsibilities. The first place to start with this is with a budget. Your money doesn’t control you, you control your money.
Live Within Your Means
This doesn’t apply to big budget items, this applies to small cost items as well. Do you really need to go out with your friends three nights a week? That’s money that you could put towards your bills, a savings account, your early retirement fund or even a life insurance policy. Just because you’re old enough to get a credit card and borrow money doesn’t mean that you should start accruing credit card debt as soon as possible. Being responsible in your 20s isn’t fun, but it will most definitely come in handy when you get older. Lay the foundation now so you’ll have a well-built financial house in the future.
As you’re making out that budget, be sure that you set aside money each month for savings and that you treat it just like any other bill. If it’s possible, have a certain percentage of your paycheck automatically diverted to your savings account so you don’t have to remember to. While you might hate saving that money instead of buying new clothes or going to the movies, you’ll be glad you did should your car ever need expensive emergency repairs or if you should suddenly lose your job. Even if neither of those scenarios should come to pass you can still start saving for retirement.
Pay off those Credit Cards
Try your absolute best to pay off your credit card balance at the end of each month. No matter how low your interest rate is, you’re basically shredding money each month that your credit card balance goes unpaid. As you get older you’ll have more financial responsibilities like life insurance, a mortgage, kids and a car payment, and you don’t want to have to deal with paying off your credit cards on top of all of that. If you can, try to make two payments each month for your credit cards to avoid more interest fees.
Get Life and Health Insurance
Even if you don’t consider yourself to be the marrying type, getting life insurance is still a good idea, as is health insurance even if you exercise regularly. Funerals are expensive, and you don’t want to leave the cost of your burial, funeral services and the cost of your casket to your friends and family. Get a small life insurance policy that’s just enough to take care of your funeral and any debts you might have. As for health insurance, the laws are changing so that individuals of a certain age have to have health insurance or else they’ll be fined. Start exploring your options now so you can spend that money on your premiums instead of on taxes.
Think About Retirement
Just because you’re still in your 20s doesn’t mean that you’re too young to be thinking about retirement. If you start saving $200 a month when you’re 25 in an account that earns a median yearly return of 8%, by the time you’re 65 you’ll have saved up $703,000. If you wait until you’re 30 before you start saving for retirement, you’ll only have $462,000. You might have big plans for your future and think that you’ll still be working even when you get old, but you should always plan for the worst while you’re hoping for the best.
Your 20s are all about balance. You’re still young enough that you want to go out and have fun in life, but you’re also at an age where you need to start taking on more and more responsibilities. Your finances will always be one of your biggest responsibilities, so you might as well start getting them in order now while you still have time.