Adulting is all too REAL for people in their 20s. That period between college and adulthood can take some time getting use to. Now you have bills to pay, you have to go to work every day and you have to make major financial decisions that will impact you the rest of your life.
One thing that some people in their 20s don’t do is take their personal finances serious as they should. I used to think that my 20s was just for fun and in my 30s I would be more serious about my finances and life in general. But I quickly realized that wasn’t a good idea at all.
So at the tender age of 27, I decided enough was enough and started being more intentional on how I managed my money. During my journey, I have learned a few things that I think can be helpful for someone that’s on their journey to being financially fit in their 20s and beyond.
Develop a Written Budget
A budget is by far the best tool to have in your arsenal when it comes to personal finances. By having a WRITTEN budget, it allows you to have a plan of action on how to utilize your money when it comes to paying bills, saving, and investing. There isn’t one perfect way to do a budget. You can do your budget every month, every week or even every day. However, the most important thing is having a budget, writing it down and tailoring it to your own financial situation.
Adjust Your Lifestyle
For some folks in their 20s, adjusting their lifestyle can be the most challenging thing to deal with. One’s lifestyle can include an array of things, from the apartment that they rent to how many times that they hit up a happy hour during the week. All of these things require money, which will add up after a while.
When it comes to being financially fit, it’s not so much about how much money you make, but it’s all about how much money you spend. I’m not saying to live a miserable life and not have fun, however I am saying be mindful of what you spend your money on and how much value things, like cars and clothes, bring to your life. By making a small adjustment in your lifestyle, it can be the difference between you being wealthy to you living check to check the rest of your life. Make the right adjustment for you and your future.
Eliminate Debt ASAP
Debt is everyone’s least favorite 4 letter word. For someone in their 20s, debt typically includes student loan debt and credit card debt. I know some people that has $100K plus in student loan debt and $25K in credit card debt. YIKES!!! These amounts are definitely alarming and can be very depressing for someone in their 20s.
So how can I eliminate my debt? Well, there are tons of methods out there to eliminate debt, from paying off the debt with the lowest interest rate to using bonus checks and tax refunds to pay off debt.
But one method that has been popular more recently is the DEBT SNOWBALL (link), which requires you to be intentional with your money and a lot of sacrifice and discipline. So how does the Debt Snowball work?
With the debt snowball method, you make minimum payments on all of your bills except the one with the smallest balance, in which you will increase your monthly payment by $100 - $250 for that bill until the debt is paid off. Once the debt is eliminated, then you will attack the next lowest balance by using the same method and repeat the process until you are DEBT FREE.
Invest. Invest. Invest.
Investing is one of those things that some people in their 20s are hesitate to jump into. The risk related to it and the funds needed for investing can be a lot to take in. However, with the right strategy and the right financial advisor, investing can be relatively easy and less daunting.
There are tons of different types of investments out there. Anything from stocks and bonds to mutual funds and futures. The two main things to keep in mind is to diversify your investments to minimize your risk and always buy low and sell high in order to get a bigger bang for your buck.
Furthermore, one thing people in their 20s are doing is starting an investment group with some trusted friends, colleagues and/or relatives. This is a great way to build wealth at a young age and gain the necessary knowledge along the way.
Start Funding Your Retirement NOW
Retirement is something that we all envision, but it seems like it’s some far fetch thing that won’t matter to you until later in life. However, retirement does matter NOW and should be taken seriously NOW.
For someone in their 20s, the one thing that is on your side is TIME. Let’s say if you are 25 years old, you have 40 years (if the retirement stays at 65…doubt it) to fund your retirement. That’s a lot of time to stash away money. If done right, you can be a MILLIONAIRE easily when you are ready to retire.
So, what are some retirement options available for me? There are many different types of retirement options out there. You have the traditional 401K and pension plans that may be offered through your employer. Additionally, you can take advantage of other retirement options, such as deferred compensation, profit sharing and employee stock ownership plans (ESOPs). Just to name a few.
One popular retirement vehicle that a lot of people utilize is an individual retirement account (IRA). An IRA is an account that is set up at a financial institution that allows a person to save for retirement with tax-free growth or on a tax deferred basis.
The two primary types of IRAs includes a traditional IRA and a Roth IRA. With a traditional IRA, you make contributions that you may be able to deduct on your tax return and any earnings from those contributions can potentially grow tax-deferred until you withdraw the funds when you retire. And with a Roth IRA, you make contributions that you’ve already paid taxes (after-tax) on, in which your money will grow tax-free and you will be able to withdraw your money without any tax implications when you retire.
As my favorite cliché saying goes, “Knowledge is Power.” And when it comes to personal finances, knowledge is the most powerful thing that you can possess. That knowledge can change your financial situation INSTANTLY.
You don’t need to be a financial expert or have a degree in Finance in order to be financially literate. However, you need to have a working knowledge that will help you make financial decisions that will be beneficial for your life. On top of being knowledgeable, it’s always good to have a qualified financial advisor in your back pocket, just in case you need to bounce something off of them.
One way to obtain financial knowledge is by reading books/blog articles and listening to podcasts that are out there. My personal favorite is Dave Ramsey (link). He is an old school “no nonsense” type of guy that encourages his listeners to be debt free and live like nobody else. His book, The Total Money Makeover, has changed my life and encouraged me to be more serious about my personal finances, from debt reduction to wealth building. Please check it out…you won’t be disappointed.