Smart Financial Steps For Your 20’s.
Your 20’s are a unique and great time of life. Starting out on your own after you finish school is exciting and can be scary.
It sometimes seems like everything is happening in your life at once. Other times it feels like you have endless time to make important decisions and get your life running on the track you really want.
Both are true at once. Many, many things are happening all at the same time. Your work life is likely becoming more focused. You may be in an entry level job and you may not be in the field you want to be in eventually, but you are likely working to support yourself and starting to develop a better idea of where you hope your work life will go.
It’s also true that you do have a long life ahead and not every decision must be made now. However, when it comes to your finances, if you will make a few smart financial steps and develop a few careful habits, you can set yourself up for a much better financial future both in the near term and definitely in the long term.
Here are just a few smart financial steps that you can take in your 20’s to improve your financial life for the rest of your life!
Pay off student debt.
In 2013, a full 70% of college students graduated with debt, averaging $30,000 in student loans.
Student loan debt in particular is often blamed for preventing young people from buying homes and growing their wealth, so the sooner you can start living debt-free, the better.
If you have debt, it’s usually in your best interest to pay more than your minimum payment, thereby reducing the length of your loan and the amount you pay in interest. If you aren’t sure where to start, consider the advice from 13 real people who paid off thousands.
Enroll in your company’s 401(k) plan.
“Pay yourself first,” says Meaney. “It’s one of the smartest pieces of advice you can get.” This means, first and foremost, contribute to your 401(k) if your employer offers one, and take full advantage of your company’s 401(k) match program — which is essentially free money — if it has one.
Also, get in the habit of upping your contribution on a consistent basis — just 0.5% of an increase can make a difference — either once a year or every time you get a raise. Check online to see if you can set up “auto-increase,” which will automatically increase your contributions every year.
Create a budget and monitor your cash flow.
Cash flow is one of the most important things to be aware of, especially in your 20s, Meaney tells us: “You’ve got to know where your money is going and you’ve got to make sure that more money is not going out than is coming in.”
This means sitting down to craft a budget. Creating a budget does not have to be the daunting process that people make it out to be; in fact, managing your money can be quite simple with the proper resources and attitude. For ideas, take a look at the insight offered by 14 regular people who keep diligent budgets.
There are also many free budgeting apps to help you categorize and monitor your monthly and annual spending.
Get the insurance you need.
As tempting as it may be to save a bit of money each year by foregoing insurance, that’s one of the worst money mistakes you can make.
“If you are a renter, definitely get renter’s insurance,” says Meaney. In addition to covering break-ins or damage from a fire or severe weather, renter’s insurance will cover you if your car is ever broken into. “Anything that is not part of your vehicle that is stolen from your car — golf clubs in your trunk, for example — is not covered by auto insurance,” he explains. “Your renter’s insurance on the other hand, will cover those items.”
Auto, health, and disability insurance are three other must-haves, Meaney emphasizes. Check out this young adult’s guide to affordable health insurance to get started.
– via Business Insider
Watch Out For The Unexpected
If you asked people in their 60’s what events over their lives caused them the most problems financially, it is likely that many of their answers will include the unexpected. A sudden job loss, a serious illness or accident, or any other unexpected event that has financial costs associated with it.
If you are prepared ahead of time for the unexpected with an emergency fund and good credit then this kind of bump in the road is just that. It’s not fun and not what you wanted, but you can handle it and more importantly you can see how you will get back to normal financially soon.
Not being prepared for unexpected financial emergencies are where many people get into very stressful situations or find themselves unable to deal with their obligations in the way that they want. This can create a longer term impact on your financial life, not to mention your stress level and your health.
Here is a look at how to prepare for the unexpected in your 20’s so the bumps in life’s road don’t become a financial cliff!
Set up an emergency fund
First, some good news: Young people don’t appear any less inclined to stash away money for emergencies than their elders, according to Bankrate.com polling data.
A little over a quarter of 18- to 29-year-olds said in June they don’t have any money set aside; that’s in line with other age groups.
Here’s the bad news: That still means a lot of young people aren’t setting up emergency funds.
Financial advisers say that people who are single should have six months of expenses saved up, in case they lose their jobs, have a medical crisis or otherwise need money to stay afloat. Married couples should have three months’ worth saved up, Harris said.
Plus, people in their 20s tend to have less saved for emergencies than older people. Fewer than half of respondents in the 20-something category had three months of expenses set aside. Only 14 percent had six months’ worth saved up, compared to double that among people 50 and up.
Bera recommends setting up a separate bank account and funding it gradually, say $100 a month, with automatic transfers or direct deposit.
Keep an eye on credit
Keeping on top of credit card and student loan payments should give your credit score a boost, but Bera cautions that that’s not enough to ensure a good credit score.
She recommends checking your credit report regularly to make sure some long-ago bill that got lost in the shuffle isn’t dinging your creditworthiness.
Credit scores matter — a lot. They dictate whether you can get a loan and what interest you pay on it. Go to buy a house, say, and a years-old mistake could cost thousands of dollars.
By law, you’re entitled to one free copy of your credit report a year from each of the major credit bureaus — TransUnion, Equifax and Experian. One idea: Stagger when you request them, and you can check in on your credit once every four months.
They’re also easy and quick to pull. They can be requested for free at AnnualCreditReport.com.
It’s a right that most Americans — especially young people — aren’t taking advantage of.
A survey from the National Foundation for Credit Counseling earlier this year found that only about a third of all respondents had pulled their credit report in the last year; 18- to 34-year-olds had the lowest rate, at 32 percent.
– via Washington Post
How many of these smart financial steps have you already taken?