From establishing careers to finding love and exploring the world, 20-somethings have a lot on their plate. The last thing many of them want to think about is money. (Especially since financial reality for many recent grads is pretty grim.)
But the harsh reality is that time doesn’t stand still. Closing your eyes to money matters when you’re starting out in life can severely limit your choices later on and put the brakes on achieving almost any life dream you can imagine. It might not feel like it, but the truth is, the time to start getting your financial house in order is now – even if you’re an underpaid assistant and your diet consists of 75 percent ramen. Your 30-something self will thank you for thinking about this stuff.
1. Put a dent in your debt.
Once you have your first job it can be tempting to treat yourself a little, but no matter how good the deal or well-earned the indulgence, if it’s going to sit on your credit card, you’re going to regret it.
“My number one piece of advice for those in their 20s is – beware of debt and credit! So many of us have made the mistake of bankrolling our 20s with credit cards, and spent our 30s digging ourselves out,” financial adviser Carrie Houchins-Witt tells NerdWallet.
And no, it’s not a good idea to wait until you’re earning more to get started on repaying what you owe. Instead, your 20s is the right time to sit down and figure out exactly how much you can afford to pay each month (even if it’s currently not much), and start chipping away at your debt.
2. Build your credit score.
If you suspect you’re not going to like what you discover (and if you lack a financial track record, you probably won’t), sticking your head in the sand about your credit score might be appealing, but your older self won’t thank you for your cowardice. Your 20s is the time to man or woman up and start to take control of your FICO score.
“This number… is the key to many milestones in your financial life. A good score means lower rates on credit cards and loans,” Kiplinger’s Stacy Rapacon reminds young people. “Landlords may consider your score before offering you a lease. And employers might take a look at your credit report during the hiring process.”
Raising your score will take some time, but it’s not rocket science. Commit to paying your bills on time and make small purchases with a credit card and pay them off promptly. If you can’t get a card, start by having your parents add you on one of theirs (if that’s doable for you) or look into a secured card, which requires you to have cash on hand to cover most of your available credit.
3. Start saving.
You’re poor. We get it. Lots of folks live pretty lean while they’re establishing their careers, but just because your worldly possessions amount to a bag of clothes and a mattress on the floor doesn’t mean you can give yourself a pass on saving. Even if you’re only putting away a tiny amount each month, your little pot of savings will eventually cushion you in a financial catastrophe or enable you to make happy life-changing decisions (probably both).
The standard advice on getting started is “pay yourself first” and aim to put away ten percent of your income, but the best strategy for you is the one that actually works. “Put away $20 a week. Pay yourself with every paycheck. Keep a jar of change on your desk. Give yourself a dollar every time you work out,” writes Thought Catalog’s Ella Ceron. “Whatever it takes, it’s better to get a handle on your money now rather than sing all summer, grasshopper.”
4. Live within your means.
You’re not going to accomplish any of these first three points, unless you can manage this fourth one. So stop making excuses and get your spending under control!
I’ll let Ceron deliver the harsh truth: “Not ‘budget your credit card so that you can pay off your balance and still have enough to eat’ but actually within your means. Like if someone took all that pretty plastic away from you tomorrow, would you still be able to make ends meet between paydays? Yeah. Those means.”
5. Insure yourself against disaster.
Zzzzzzzzz. If there’s anything more boring than budgeting, it’s insurance. But you know what’s worse that comparing policies and filling out tedious forms? Starting again from financial zero (or deep in the hole) when you’re hit with an unexpected calamity. Auto and health insurance are the obvious must haves, but if you rent your place, consider renter’s insurance too.
6. Invest in yourself.
Up to now, all these tips have been worthy but not exactly fun. However, that doesn’t mean the only thing that’s important is dreary sacrifice. Now is also the time to take risks, develop your skills, and invest in your future. Being financially savvy is as much about boosting income as it is about trimming expenses. So don’t shy away from taking those classes (or that trip) if it’s going to pay off handsomely down the road.
“It’s important to budget for things that will enhance our skills and provide us with opportunities and connections. Whether you want to take a course, attend a conference, or pay for training, investing in yourself can help you develop marketable skills that you can use to increase your income.
7. Sometimes spending more is a good idea.
Along the same lines, being financially prudent also doesn’t always mean buying the cheapest option out there. There are times when spending a little more is the smarter decision.
“There are some items you just don’t want to buy cheap, or you’ll literally pay double, sometimes triple over time for things that won’t last. An example of this would be a car. Paying $2,000 or less for a clunker might sound reasonable, but how much will you end up paying to replace all those expensive parts in the long run? It’s often better to do some research, and buy a reliable vehicle that will last you through the 200,000 mile mark,” explains personal finance blogger Kalyn Brooke. Furniture and appliances are two more cases where it’s probably worth springing for quality.
8. Learn to cook.
Here’s another gem of often-overlooked advice from Brooke: “Making meals at home is going to be hands down cheaper than going out, and can make the biggest impact in your budget. As a 20-something, I know how easy it is to just grab a burger from the drive-thru, or live off delivery pizza, but you can make food that is just as yummy and quick with a few simple ingredients.”
9. Partner wisely.
Your 20s isn’t just the decade where most of us get our financial houses in order, it’s also the period when many folks meet their life partner. Of course, deciding whom to date shouldn’t be primarily (or even secondarily) about money, but it’s also a mistake to put a blindfold on when it comes to the financial situation of prospective partners.
“While you don’t have to see eye to eye on every financial issue, you should still choose a life partner that has the same goals and values as you. Even if your partner has issues now, you are on the right track if he or she is working toward financial improvement, and you can support and encourage each other,” financial site MoneyNing reminds starry-eyed 20-somethings.
10. Retirement? Really? Now?
OK, if you’re a couchsurfing 21-year-old intern, no one expects you to regularly contribute to a retirement account, but as the decade progresses and your situation clarifies, you’re going to want to get started on retirement saving. Yes, even if it feels ridiculously early.
“The sooner you start saving, the better. Because of the magic of compounding, time will fatten up your retirement kitty. For example, if a 25-year-old saves just $100 a month, assuming an 8 percent return and quarterly compounding, she’ll have $346,039 by the time she turns 65,” notes Rapacon. So sign up for your company’s 401k or schedule automatic monthly transfer to your IRA. Your older self will love you for it.