Your twenties are an exciting time, filled with new jobs, new friends, and important life decisions. While bridging the gap between carefree adolescence and fully fledged adulthood, it’s important to set up healthy financial habits that will benefit you for a lifetime. These are the money moves you should make in your twenties to set yourself up for success over the long haul.
Start a Retirement Account:
When you’re still struggling to get your bearings at your new job, saving for the 50-60 years down the road when you’re finally able to retire is probably your last priority. However, it’s essential to get started on your retirement account as soon as possible. Whether that be through a 401(k) with your employer, or an IRA with an institution like Merrill Edge, it’s important to start putting small amounts away that can appreciate over time and leave you sitting pretty when retirement age finally does roll around.
Cut Down on Unnecessary Expenditures:
We throw money away every day on frivolous things. Cue one of the biggest money sucks: “designer” coffee. Going to Starbucks once every day can see you spending upwards of $30 per week, whereas buying a bag of coffee grounds costs a fraction of the cost and lasts much longer.
Pay Off Any Debt:
If you have student loans, car payments, or credit card debt you need to pay off, start today. Whether you use the avalanche method and first pay off those accounts that are accruing the highest interest, or utilize the snowball method and tick off the smallest accounts first to make your debt more psychologically manageable, make a plan and stick to it.
Stick to a Budget:
Few things are as important as learning to budget. Budgeting will help you live within your means and provide you with enough surplus money to put into emergency savings, pleasure expenses, and retirement all in one fell swoop. Following a fairly strict budget can also help ease monetary stress, and will make you feel more in control of your financial status. If you need a bit of budgeting help, check out online apps that make it easy and convenient to track your spending, like BudgetTracker.com.
Start an Emergency Fund:
It’s always better to be safe than sorry, and that’s the guiding principle behind starting an emergency fund. Financial experts recommend having at least three to six months’ worth of living expenses, but you can slowly build up to this lofty savings goal by siphoning a bit of your paycheck each month into a separate account.
Get a Handle on Your Taxes:
Taxes can be a complex task to get your head around, but it’s important to get the right grip on what you owe the government each yea. It’s a good idea to work with an accountant or tax professional at a company like CTax on your first few go-arounds. They can help you navigate the sometimes tricky wording and forms that come along with tax season, and more importantly, help you determine the credits and deductions that can help you save hundreds to thousands of dollars on your taxes each year.
It’s important to have a fully formed understanding of various forms of insurance in your twenties, from auto, to home, to medical. When it comes to health insurance, look for low-cost versions that will protect you should the worst happen, and keep in mind that new laws mean you’ll pay fines at tax time if you don’t have health insurance. Keeping up with your health insurance may even mean saving a lot of money on medical expenses down the road.
By Alicia Chancellor