Everyone wants to be in control of their finances, but what does this really mean? If you want to practice lucrative money management but you’re not sure where to start, this post is for you.
Your 20s are a great time for fun. Getting your first taste of independence, living on your own, or with friends and beginning your career are all rites of passage you can enjoy during this time. For many people, your 20s are when you first start earning a decent income too.
Getting your first ‘real’ paycheck is always exciting and there’s no doubt you’ll want to treat yourself to something special. While it’s natural to want to spend some of your cash on the things you love, don’t overlook the importance of practicing good money management in your 20s.
By understanding how to manage your finances and how to plan for the future, you can ensure that your 20s are filled with fun, frivolity, and financial success. To get started, take a look at these key financial goals to reach before you’re 30:
1. Understand your finances
The first step to taking control of your finances is to understand them! How long do you spend looking at your paycheck every month? Do you know what the various codes and abbreviations really mean? Do you know what interest rates you’re paying on credit cards? Or how much interest your earnings on your savings?
If not, it’s time to take a dive into your finances and really get to grips with them. Sure, you probably don’t want to know how much tax you’re paying or how high your credit card balance is, but it’s essential to recognize the less palatable side of your finances too!
2. Clear your debts
Almost all adults have some form of debt, but the wrong debts or unmanageable debts can wreck your financial future. High interest rates or regular charges mean you’ll spend years paying debts off without really making a dent in what you owe. That’s why it’s essential to pay your debts off as quickly as you can.
When you’re in your early 20s and you first start earning a decent salary, it’s relatively easy to get credit. Over time, however, you’ll be paying more to creditors each month and it won’t take long until your financial obligations become overwhelming.
Take a look at the debt management strategies available to you. Find out the purpose of the Debt to Success system, learn why it’s good to pay off high-interest debts first, and discover how you can get some debts written off. Addressing your debts may seem stressful at first but it’s one of the most effective ways to achieve true financial freedom.
3. Create a workable budget
Having a budget doesn’t mean you have to live frugally or deny yourself treats. In fact, you can enjoy spending your money when you’re not worrying that you’re living beyond your means. When you create a budget that really works, you’ll have the confidence to enjoy treating yourself to a new outfit, the latest console, or even a vacation.
Before you can do that, however, you’ll need to spend time looking at your finances and working out a budget. To get started, identify every form of expenditure you’ve encountered over the last three months. Where is your money going? How much do you spend on getting to work? What percentage of your income goes on essential bills, like rent, utilities, and food? Are you paying for subscriptions you no longer need or want?
Creating a budget helps you to identify unnecessary expenditure and cut it out of your life. Furthermore, a workable budget will help you to reduce your costs and find cheaper alternatives to essential purchases. With more money to save and spend on luxuries, you’ll never regret creating a budget in your 20s.
4. Have a savings plan
When you’re creating your budget, don’t simply focus on your bills and your treats. Think about the future too. Everyone in their 20s should have a savings plan, so be sure to factor this into your monthly budget. Whether you’re able to save $10, $100, or $1,000 a month, the act of saving will help you to reach your financial goals more quickly.
To make it easier, give yourself an attainable goal that you’re truly motivated to achieve. Perhaps you want to save a deposit so you can buy your own home? Maybe you want to take a sabbatical and travel the world? Or do you want to finance a degree program so you can increase your earning power in the future?
No matter what your goals are, clearly identifying them and putting a strategy in place will get you one step closer to achieving them. Regardless of how long it takes to get there, setting yourself a clear objective will give you the inspiration you need to maintain your savings plan throughout your 20s.
5. Prepare for emergencies
Financial emergencies happen to everyone at some time or another. Whether you’re in your 20s, 50s, or 70s, you can be struck by unexpected financial problems at any time. For young professionals, the risk of losing your job in an economic downtown is possibly the biggest financial emergency you’ll face. When you lose your job – and your income – you’ll have very little time to find an alternative source of income before you start falling behind on your essential bills.
That’s why it’s important to prepare for potential financial emergencies. If you fail to do so, you could find yourself forced to dip into your savings when disaster strikes or you may struggle to keep up to date with important bills, such as rent and utilities.
As well as having a savings plan for life goals, have a separate savings pot for emergencies. By keeping these savings separate, you won’t be tempted to dip into your savings when you need to find extra cash.
6. Examine your luxury spending
No-one wants to spend their 20s living without any luxuries, but do you really need all the extras you’re currently treating yourself too? Getting used to living on a budget and really thinking about your purchases will stand you in good stead for the future. As you get older, it’s likely you’ll have an increasing amount of financial responsibility. By learning to balance the competing interests of what you want to spend your money on versus how you need to spend your money, you’ll find it easier to adapt in the future.
Of course, you don’t have to go overboard and resign yourself to a life devoid of treats in your 20s. Simply get used to asking yourself whether you really want or need whatever you’re about to spend your money on.
Furthermore, take time to look for alternative ways to have treats without the price tag. If you treat yourself to a takeaway coffee once or twice a day, assess whether it would be cheaper to invest in a coffee machine and reusable cups instead. By making small changes to how you finance your luxuries, you’ll be surprised at how much you can save.
7. Learn how to invest
Investing your money can enable you to grow your capital and even generate regular income, providing you invest in the right way. Although there are some no-risk investment opportunities, these typically offer relatively low rewards.
However, beware of investment opportunities that promise high rewards. These typically involve high risk and you could end up losing your money entirely, rather than making a profit. Before making any type of investment, it’s important to ensure you understand how the process works, what could go wrong, and how long it could take for you to recoup your losses.
If you’re unsure what types of investment are right for you, it could be beneficial to seek advice from a professional. By working with a reputable financial adviser, for example, you can learn more about the investment opportunities that are available to you and access the help you need.
8. Update your financial management
Your money management strategy should change when your circumstances do, so don’t feel you need to stick rigidly to your original plan. As you climb the career ladder, your income should increase, for example. This may mean you increase the amount you save every month, for example.
Alternatively, an economic crisis may mean that your earning power reduces, in which case you’ll need to adjust your budget to reflect this. By keeping an open mind and adapting to situations that are outside of your control, you can ensure that your financial management is always up to date.
Preparing for your 30s
Turning 30 always comes as a surprise, particularly if you don’t quite feel like a proper grownup just yet! Despite this, good money management throughout your 20s will ensure that you’re in a good financial position as you enter the next stage of your life. With the right planning and foresight, you’ll have achieved your financial goals and be ready to create a new strategy to take you through your 30s.