Your 20’s is a pivotal time in life for many reasons. As you enter the realm of real adulthood, your finances should take center stage. The sooner that you take command of your personal financial picture, the more success that you will see in the future. Here are five do’s and don’ts for personal finance in your 20’s.
Do Establish a Budget
A fundamental rule to follow when looking to establish a solid financial plan in your 20’s is to establish a well-planned budget. Without a smart budget, you will run the risk of overspending on discretionary items while not saving enough for the things that truly matter to your financial health.
There are numerous ways that you can devise a budget using a variety of available online tools and smartphone apps. Tracking your normal spending is an eye-opening exercise for many individuals. You may be shocked to see where your money is going each month. This knowledge will empower you to fine-tune your budget so that it is more aligned with your long-term financial goals.
Do Build an Emergency Fund
It is hard to imagine anything bad happening to derail your financial future when you are young. However, you are remiss if you do not prepare for financial emergencies, even at this young age. Most experts recommend stashing at least three months’ worth of living expenses for maximum security.
Building an emergency fund will give you peace of mind that you are doing everything that you can to protect your financial future. Having liquid savings on hand is ideal for those times when you need fast cash to get you out of a jam.
Do Get Insured
As an adult, you are responsible for taking the steps to have proper insurance. You are never too young to be properly insured. Start this process by ensuring that you have adequate health insurance. Do not make the mistake of thinking that you do not need health insurance just because you are young and healthy.
In addition to health insurance, you will need auto insurance if you own a vehicle. Even if do not yet own a home, you still need renter’s insurance to protect your valuables in the event of a fire, robbery, or another disaster. Your 20’s is also a good time to buy into a life insurance plan when the premiums will be at their lowest. This is particularly important if you plan on starting a family soon.
Don’t Neglect Your Retirement Savings
It is easy to fall into the trap of thinking that retirement is too far in the future to worry about now. However, once you understand the power of compounding interest, you will see why now is the best time to start building your retirement nest egg.
Instead of viewing retirement savings as taking away from your fun discretionary spending now, try to think of it as a future payment for yourself. Be sure to check with your employer about possible retirement plans that they offer. Not taking advantage of any retirement savings matching program is simply leaving money on the table.
Don’t Ignore Your Credit History
How you treat your credit in your 20’s has a significant effect on what you are able to do with your money in later decades. This truth makes it important that you do not ignore your credit when you are getting your start in your career and in life.
You can start building good credit by applying for a credit card. Depending on where you live your bank will have different requirements for opening a line of credit. For example, if you live in Nebraska, you would want to get an Omaha credit card. Once you have the card established, you can use it for basic expenses and then pay it off on time to show that you are being responsible with your money. Demonstrating that you can manage your credit responsibly will qualify you for lower interest rates on a myriad of future loans and credit applications.
What you do with your money in your 20’s can have lasting effects on the health of your finances down the road. While this is the season in life for travel and fun, it is also important to continue to make smart decisions with your money now so that you do not pay the price later.