Your 20s are an exciting phase of your life – you graduate from college, you get a professional full-time job and you even start living independently. But with all of this, comes financial responsibilities too. For instance, you have to start paying back your student loans, you have to pay your own bills, and even save for retirement.
With so much going on, managing money can seem to be difficult while you’re in your 20s. But don’t worry, we have listed down some of the easiest tips to manage money better in your early 20s.
Tip #1 – Limit Spending
While this advice might sound obvious, following through with it isn’t really that easy. So, here we’re going to talk about how you can control your spending habits.
According to NerdWallet, your income should be divided into 3 categories – essentials, wants, and savings. Ideally, you should spend 50% of your salary on essential items, 30% on fulfilling your wants, and the last 20% on savings.
You can even use apps like Wally to track your spending and see how you’re doing. For instance, you might notice that you’re spending excessively on entertainment, dining out, or even groceries and need to cut back.
The best way to limit everyday expenses is to modify your perspectives on single purchases. So, rather than thinking of a $20 dinner from Uber Eats as a one-time expense, think of how much this will cost you over the next 5 years.
Tip #2 – Save Routinely
With so many needs and wants, saving money can become a big challenge. To make the task easier, simply deposit 20% of your savings directly into your savings account.
It’s even better if you set up your savings accounts in a different bank than your checking account. This tactic helps to lower your temptation of pulling savings to your checking account because you won’t be able to see it.
Your first priority in terms of savings should be to establish a reserve fund that is big enough to cover at least 3 months of basic living and kitchen expenses. However, this doesn’t mean that you have to create the fund all in one go. Instead, you could start by setting smaller, more realistic targets like $500, and move up from there.
Don’t get disheartened if you need to cash out some money from your savings fund due to unplanned expenses. It’s actually meant to be utilized and topped up.
Tip #3 – Name Your Savings Account
Rather than simply having a savings account named Savings Account #514378, think about renaming it to something more specific. For instance, you could name your savings account after your goals such as “Buy A Car, 2021” or “Italy Trip July 2020.”
The more specific you are in articulating your major goals, the more quickly you will be able to achieve them.
Tip #4 – Control Credit Card Debt
Credit card debt can easily build up in your 20s – when your expenses increase but you have to survive on starting salary. Moreover, credit cards also have extremely high interest rates if you fail to make timely payments. You should make a conscious effort to completely avoid credit card emergencies unless it’s a true emergency.
Tip #5 – Master the Art of Paying Bills on Time
If there’s one financial skill, that you need to master in your 20s, it’s to consistently pay your bills on time. Even though it’s extremely important to save your salary for a rainy day, you can’t ignore your bills either.
When you reach adulthood, you have to become responsible for your own finances – you need to pay your own bills and cover your expenses yourself. This is why organizing your expenses and having a bill payment schedule is so important.
Bill payments made after due dates or completely missing bills can have a large impact on your credit score. In fact, the effect is so great it can even last for years. This means more difficulty getting approvals for credit cards, loans, mortgages, apartments, etc.
Always remember that it’s way easier to damage your credit score than to build it back up. So, make sure you get in the habit of paying your bills within the deadline.
Tip #6 – Pay Attention to Your Credit Score
Having a good credit score is very important if you’re in your 20s. It can make it easier for you to get loans at a lower interest rate which is essential if you aim to purchase a car or a house. Even if you wish to rent for your entire lifetime, you need to have a good credit score. This is because several landlords conduct a credit check to evaluate potential tenants.
As per a 2017 report from Experian, the VantageScore for Gen Z is 634 on average, whereas for millennials it’s 638. These scores barely lie in the “average” or “fair” credit score category. If you want to increase your credit score, keep your credit score to a minimum (or avoid it altogether) and pay your bills on time.
Another possible way to boost your credit card score is by automating payments. In fact, you will probably even get awarded for it.
Tip #7 – Start Saving for Retirement
When you’re in your 20s, retirement seems eons away. However, saving as soon as you get your first job will make it easier for you to get to your retirement goals well in advance of the big day. If your employer offers a 401(k) match i.e. it’ll match your contributions up to a specified percentage, you should take full advantage of it.
If your employer doesn’t offer a 401(k) match, you could even deposit your money into a separate retirement account.
Last Few Words
These tips to manage money better in your early 20s is surely going to take away some of the financial burdens off your shoulders. Remember, careful spending in your 20s will go a long way and make financial management for the rest of your life very easy.