3 Personal Finance Commandments For 20-Somethings
Many people erroneously believe that the 20s is the perfect time to live the good life – there is nothing wrong with living the good life. In fact, focusing all your energy on making/saving money to the extent that you can’t enjoy the fine things of life kind of negates the point of making/saving money. However, many 20-somethings often mistake the advice to live a full life to mean being irresponsible with finances in their 20s with an understanding that they can always get back on track in their 30s.
Nonetheless, your 20s is not only a time to find yourself, forge your path, and enjoy some of life’s best experiences – your 20s is also the best time to sow the seeds of a financially secure future. In fact, your financial position at the end of your 20s could determine how well you’ll be able to navigate life’s financial maze in your 30s and 40s. This article provides insights on three personal finances commandments that could set you on the right path to financial security.
Learn how to make a budget and stick with it
When you are in your 20s and you’ve started earning money, it easy to get caught up in the moment, feel like the world is at your feet, and that you’ve got all the time in the world. However, you need to start working with a budget so that you can minimize the risk of overspending on discretionary items. Budgeting will also helps you to develop a habit of saving money early on because it is often harder to save once you’ve developed a habit of spending all of your income.
You can get started on budgeting by using one of the many budgeting apps available. You can also go the old-fashioned way of putting pen on paper to get a handle on how you allocate money to your needs, wants, and your dreams. You can start by listing out all your daily expenses such as food and transport. You can then go on to list out all the monthly recurrent expenses such as utility bills and rent. Writing down your expenses helps you to see a pattern in how you spend money and you can start making the necessary adjustments.
Become a pro at the credit score game
Irrespective of what new age self-styled financial gurus and pros tell you, you’ll need to embrace some debt if you want to build a financially secure future. You’ll need to start playing the credit score game and you need to learn all the rules and become an excellent player as soon as possible. To start with, you must take on some debt through a personal loan, credit card, or other type of loans. And no; you can’t stay on the sidelines to sit this one out because “no credit” as bad as “bad credit”.
Getting loans, taking up credit, and paying them off in good time helps you to build up your credit history and earn a decent credit score because it shows that you know how to manage your finances. Your credit report, which is a snapshot of your credit history and credit score can in turn wield tremendous influence on important financial milestones in your life. For instance, a good credit score might make a difference between getting a lease, auto loan, and even securing jobs in some industries.
Create an emergency fund before you need it
The best time to plant a tree was 20 years ago, the second best time is now. You might have noticed your parents or older people around you getting into financial troubles because they didn’t have an emergency savings fund at hand when life threw them some lemons that we all face at one point or the other. However, you don’t need to wait until mayhem happens before you start wishing you’ve created an emergency savings fund.
It is good to be insured but you need to understand that it is hard to get a policy that covers all the bases of life’s dark alleys. An emergency savings fund covers those events in which insurance might be borderline useless. The best part is that an emergency savings fund is still yours even if an emergency doesn’t happen. In contrast, if you don’t have reasons to claim insurance, you are not likely to get those insurance premiums back.