While we’re in our twenties, nobody expects us to have all the answers (well, except maybe our parents). This is especially true when it comes to finances. Getting through school and starting a career can bring up questions and confusion about the best way to handle your money. Whether you’re struggling to make ends meet or earning steady income, there are a few things you can do to lay the groundwork for your financial success.
Build A Budget: Yeah, this seems obvious, but it’s amazing how many people just don’t do it. A budget helps you avoid regrettable impulse purchases, teaches you to seek out bargains to get the most for your money, and shows you that you can set and achieve long-term goals. Not sure where to start? Deserve has some useful tips on how to create a budget just for you.
Create An Emergency Fund: Speaking of budgets, make sure yours includes setting aside some dough–even a little at a time–in an emergency fund. Emergencies like unexpected car repairs, medical bills, or losing a job are more commonplace than we like to think. Having a cushion of a couple of month’s pay can be enough to soften the blow. It may be hard to put that money aside, but it’ll be harder to pay off high-interest loans or credit cards.
Pay Off High-Interest Debt: Speaking of high-interest debt…Americans aged 24-39 have an average of $87,448 in debt. Most of that revolves around student loans and credit cards. Paying it off as soon as possible can save you thousands of dollars in interest. Start with the highest interest loans since they put the biggest hurt on your bottom line. It’s often advisable to pay off this kind of debt before putting extra money into retirement savings for that reason.
Start Saving for Retirement Now: It’s all about compounding interest over time. The sooner you start investing in something like a 401(k) or a Roth IRA, the more interest you’ll earn, which gives you more money earning more interest decade after decade until you start wearing socks with sandals and retire. Your future self will thank you. For example, a good rule of thumb is starting your 401(k) investment per paycheck at 7%, and you can increase as you see fit over time. And if your employer offers a 401(k) match, USE IT! That’s free money just for you.
Build Your Credit History: When you have a solid credit history, you will reap the benefits now and for the rest of your life. Not only will you have a higher chance to get approved for loans and the best credit cards, but also you’ll probably pay a lower interest rate on them. On top of that, proving your fiscal responsibility means you’re more likely to get approved for an apartment and pay less for things like car insurance and cell phone service. Build your credit by:
- Paying your bills on time. Set up automatic payments through your card provider or create electronic reminders so that you never miss a payment.
- Paying more than the minimum amount, if possible. This will help you dissolve your debt quickly, which decreases the amount of interest (see: extra $$$ taken from your wallet) you accrue over time
- Living within your means. Being honest with yourself about what you can and can’t afford isn’t always fun, but it will save you so much stress (and yes, extra $$$ again) in the long run. It all goes back to budgeting!
- Using credit cards responsibly.
Get Insurance: This doesn’t sound sexy, but it can be a smart use of your money. Think of it as investing in yourself and protecting yourself against any catastrophic emergencies. Take advantage of your employer’s health insurance or find a policy you’re able to afford. Get renter’s insurance to safeguard against loss of your belongings. Even disability insurance can help protect you in case you’re unable to work. Those insurance premiums are often much cheaper than dealing with a sudden unfortunate turn of events.