5 Steps To Getting On The Right Track Financially In Your 20s
It is incredibly hard these days for a young person to get on the right track financially early in life. Whether it is student loans, cost of living, or a weak job market, there are many factors working against the 20-somethings today. This post is aimed to be a roadmap for the 20-something looking to get on the right track.
In order, here are the steps you must take:
Step 1 – Get Your Income Moving
Nothing starts until income is taken care of. This means you need a job. One that pays. You don’t have to work at a bank in New York, but you probably shouldn’t be working at a non-profit earning $20k a year. You need a decent level of income to get on the right track financially.
Until you have a consistent income stream that can cover your expenses and then some, most of the next four steps are impossible.
Now, getting a job today is tough because the economy flat out sucks and now 20-somethings have 30-somethings competing for the same jobs, so its a terrible time to find a job. The worst thing a person can do is hold out, waiting for the perfect job. You need income now. Work at a restaurant, do whatever. The next step is just as important; once you get income going, don’t settle and let a few years go by while you bus tables. Instead, continue your job search just as intensely. Get income. Continue looking for a high paying, consistent income.
Step 2 – Money Management
There are three areas of money management that need to be addressed: spending, saving, and debt. If you have debt, this has to be your focus. Get rid of it. Cut spending to bare bones amounts until you can kill your debt. When you get rid of all your debt, you will have freedom to allocate your money towards other areas.
A huge part of getting rid of debt and managing your money appropriately is having an aggressive budget to minimize spending. Going out to eat, buying expensive clothes or consumer products, etc. will not help you get out of debt or save significant money. The easiest way to get control of this part of your life is to signup for Mint.com and start seeing where all your money goes.
Step 3 – Planning and Setting Goals
Once you have Mint.com working and you have started to see your spending trends and patterns, it’s time to set some goals and make some plans. If you still have debt, getting rid of it is your #1 goal. After that, maybe you want to save up for a down payment for a house, or put X amount of dollars away each year toward something.
Other goals that should definitely be addressed are cutting spending in areas where you over-spend. This is where Mint.com can really be helpful. You can not only see how much you are spending in each area, but you can set a goal and watch your progress toward staying under a certain limit in a spending area.
Step 4 – Retirement & Long-Term Saving
Once you have your budgeting and money management habits in place, you can really maximize your retirement and long-term saving. If you work for a company that offers a 401(k) plan, then this is an easy place to start and definitely one you should take advantage. A 401(k) is great for two reasons: it allows you to do automatic contributions where you don’t have to rely on your own discipline to put money towards your retirement and your 401(k) will likely give most people their first experience in investing and in the stock market. If you can’t participate in a 401(k), open up an IRA.
Putting money towards your retirement may be the last thing you are thinking about in your early 20s, but it’s so crucial for you to do it. Every dollar put away now is huge down the road. Click here to see the impact.
Step 5 – Expand Your Skill Set
If you have a good job, have no debt, are managing your money well and consistently putting money away towards your retirement, congratulations. You are well ahead of just about everyone out there. You have taken control of your financial life and are being responsible and extremely smart about your money. So, what else is there?
The last step that I like to consider is your skill set. As I mentioned in the previous step, a 401(k) is often a person’s first experience with investing. How can you gain experience in investing and perhaps, make some active investments on your own? How about working towards additional income streams by building a few profitable niche websites? These pursuits take additional skills.
While finding extra time in a busy life is challenging to say the least, see if you can carve out some time to learn how to invest or learn how to create a website. Slowly building a side business might be the best thing you ever do, because one day you might wake up and find that your “side” business is now a real business and one you can rely on for your entire income! The most important thing is that it won’t happen overnight and to be patient. The good thing is that you are starting in your 20s!
Notice real estate was not included in these 5 steps!