Smart Ways to Use Your Money in Your 20s
When you’re in your 20s, you may think that you have plenty of time to plan for your future, but the truth is that it is never too early to get started, and the sooner you get ‘your financial affairs in order, the better of your will be in later life.
There isn’t a long term budgeting and strategic planning advisor who would not recommend that you start using your money smartly as soon as you start earning your money in your 20s. If that is something you want to do, but you’re not really sure how here are some smart ways to use your money in your 20s:
Before you spend your paycheck on a flash new car or regular nights out on the town, you should make efforts to pay off your student debt. With student debt amounting to many thousands of dollars, until you can get rid of them, you are limited in what you can do with your money, and you will find it much harder to invest in your future.
It is always better for you to pay off more than your minimum payments of any debt, as you will clear the balance more quickly and pay less interest, leaving you in a better financial situation than your peers who chose to pay the minimum and party, not thinking about the future.
Enroll in Your Work’s 401(k) Plan
It’s a sure sign that you’re an adult when you enroll in your company’s 401(k) plan. Although it means less money in your pocket, making contributions to your 401(k) plan, if one is available to you, is an investment in your future. If your employer operates a scheme to match your contributions, you will effectively be getting free money, which will see you well as you get older.
If you have a 401(k), it is also advisable that you increase your contributions on a regular basis, as you become more financially independent. Even a modest increase of a half percent each year can result in a sizeable nest egg come retirement.
Pay Off Credit at the End of the Month
If you absolutely must use a credit card, and there are some reasons why this may be necessary, such as building your credit history, always aim to pay off the balance in full at the end of the month. This will show credit companies that you are a responsible person, and it will save you from having to pay interest on your purchases.
Create a Budget
In your 20s, it is of particular importance that you monitor where your money is being spent, so that you can adjust and make changes that will help you save money. The easiest way to do this is to create a budget where you log all of your incomings and outgoings. This is something that can easily be done in Excel, and although it may take a little time to set up, it is well worth doing because it will enable you to better manage your money.
Of course, there is no point setting up a budget if you are not going to take the time to log all your incomings and outgoings on it each day, month or week, depending on how often you choose to update. You need to log everything there if you want to get an accurate picture of your finance.
Make Money Goals and Save Towards Them
When you’re in your 20s, you can never save too much money. There will always be a need for savings, and you will have a number of goals to work towards, whether that be a dream holiday, a new home or further education.
If you have several goals, you should work out how big a priority each one is and then work out how much of your income you will need to meet each goal in the desired time frame. You may also want to look at investments and dedicated a portion of your income to investing in fairly safe stocks that will help your pool of money grow.
It is common for 20 somethings to consider themselves invincible and think that nothing bad will ever happen to them. Sadly this is not the case, which is why it pays to use some of your money to obtain ay insurance that you might need, whether that be renter’s insurance, disability insurance or car insurance. This will help to ensure that your savings are not eaten up by expensive should something awful happen.
Start an Emergency Fund
If you have spare cash left at the end of the month, instead of blowing it on video games or designer purses, start your own personal emergency fund, which can be used to cover unexpected expenses such as medical bills, car repairs or as an emergency backup should you find yourself unemployed.
On average, an emergency fund that is equal to about six months’ salary should be adequate, but if you have more or less expenses than average, the amount of money you need will vary.
Invest in Quality
Of course, you’ve earned your money, and you deserve to spend it on some nice things, and in fact, most financial experts would agree that it is better to spend your money on quality items, which will last longer, than it is to buy lots of cheap things that will need to be repaired or replaced on a regular basis. The trick is to work out which items are worth spending more on and which can be bought cheaply. This is something you can ascertain with a little research.
See a Financial Advisor
Although all of the above tips will put you in a good position to manage your finances smartly, nothing beats making an appointment with a professional financial advisor, who will be able to help you make the most of your money, however much it may be.