Your twenties are arguably the most important and memorable times of your life. It’s a time for learning life lessons, making mistakes and discovering who you are.
But, it doesn’t come without it’s challenges – high cost of housing and health care, student loans, stagnant wages, lack of employment opportunities and much more. This can make managing your finances as a twenty-something overwhelming, to say the least.
That’s why I’ve compiled a few tips to help you take control of your finances and enjoy financial freedom without having to pay for it later on. So with that being said, here are 11 important money lessons every twenty-something should know.
1 – ‘Budget’ isn’t a bad word
Confession: When I was younger I hated budgeting with a passion. I thought it was tedious and a waste of time. But many of my feelings came from my lack of understanding and unwillingness to truly learn the art of money management – because it’s a skill, yo.
In order to be successful financially, you have to track your money – how much money you make, where you spent it and how much is left – and the best way to do that is by creating a budget. Being aware of your spending habits allows you to control of your money instead of letting it control you.
2 – Start an emergency fund asap
It’s important to start saving now, because an emergency always comes when you least expect it. Your car breaks down, your house catches on fire – stuff happens.
I’d suggest putting in $1,000 if you can. Why $1,000? Because that’s enough to get you out of most difficult situations.
But, if you don’t have that much yet, no worries, just put in as much as you can each month until you reach your goal amount. Having some money saved away is the perfect safety net if something goes wrong – and something will go wrong.
Pro-tip: Automate a certain percentage of your paycheck to go into your emergency fund every month. You’ll be surprised by how much you save by the end of the year.
3 – You don’t need a credit card
Right when you turn 18 you’re pressured by society to get a credit card as if it’s a necessity equal to eating or breathing. But the truth is, in most cases, you don’t even need a credit card.
There are plenty of other ways to build credit – like paying bills and student loans on time – and if you’re smart about saving then you won’t need a credit card for emergencies or everyday spending.
With that being said, credit cards could be beneficial if handled responsibly (paid in full every month) but I’d argue that the other side of the coin – being in severe debt the rest of your life – isn’t even worth the risk. In my opinion, if you can’t pay for something with cash, you don’t need it.
4 – Live within your means
I know it’s not that glamorous, but living within your means can be the difference between having financial independence in the future vs facing compounding debt for years to come.
Credit cards and loans allow you to buy more than your income allows, but it’s not sustainable for the long-term and will eventually catch up to you.
The best way to live within your means is to set up a budget, set savings goals, and live as frugally as possible. Plant a garden, pay with cash, shop at thrift stores, compost – do what you can now to achieve financial freedom later on. I promise it will pay off big time in the future.
5 – Work smarter, not harder
In other words, set up systems in place and create habits that make money management easier on you so you don’t feel overwhelmed and overworked.
One great way to do this is to create a list of all the tasks that come with managing your finances and see what you can automate or manage with an app. There are plenty of apps out there that will help you track your finances, invest, save money, and much more.
My favorite financial management tool is personal capital for many reasons, but the main ones are that you can set up a concise budget, track your cash flow, find out your net worth, check your investments and set up a retirement plan with their easy-to-use app. Basically, when it comes to anything finance-related, Personal Capital is my go-to.
6 – Plan for the future now
There’s no better time to start planning for the future than right now. The sooner you start, the more benefits you’ll receive later on.
I know retirement seems forever, but it’s more important now than ever to focus on building a retirement fund. Because of the magic of compound interest, you can save quite a bit over time, but the key is to start as soon as possible.
If you’re not eligible for a retirement fund, the next best thing is to open a Roth IRA and set up automatic transfers through your bank, that way the money comes out of your paycheck each month without you having to think about it.
7 – Refinance your loans
There are two types of loans to consider refinancing: Student loans and car loans. Refinancing these loans can significantly bring them down to a lower interest rate, making them much more manageable.
Refinancing car loans is a super simple, painless and straight-forward process. All you have to do is go talk to your bank or credit union and see what you qualify for. A lot of times they can significantly decrease your interest rate, even if your credit score isn’t spectacular. You may even be able to shave off some of the time it takes to repay the loan.
Refinancing student loans is a similar process. It allows you to consolidate your private and federal student loans into a new, single loan with a lower interest rate. The result is lower monthly payments, which means you save thousands of dollars long-term.
Both options don’t cost any money up-front and can save you a lot in the long-term, so they’re both definitely worth looking into.
8 – Track your credit score
It’s important to get into the habit of checking your credit score regularly because it can change your life in a significant way. Your credit score impacts the interest rate you receive on a car loan, buying a home, getting a new job, insurance rates and much more.
You can request a free copy of your credit report once a year from each of three major credit reporting agencies – Equifax, Experian, and TransUnion- by going onto AnnualCreditReport.com.
I’d advise doing this at least once a year so if your score significantly lowers, you can evaluate what caused the sudden change and adjust accordingly.
9 – Set Savings Goals
It’s no secret that if you want to achieve anything in life, setting goals is a must. Savings goals helps you stay motivated and keep your priorities in focus.
Maybe your goals are to travel to a foreign country, payoff student loans or save up for a house. Whatever they may be, make sure you write them down and follow the SMART method of goal-setting. That way they’re bulletproof and you’re more likely to actually achieve them.
In short, your goals should be Specific, Measurable, Actionable, Realistic and Time-bound. For more SMART goal setting tips, check out my post – how to set goals that you’ll actually achieve.
A great habit to start is to save 10-15% of your income each month to put toward your long-term goals. You may be surprised by how much you have saved up by the end of the year.
10 – Never stop learning
Learn the things they don’t teach you in school but you need in real life, like how to balance a checkbook or invest in the stock market, for instance. The more you learn, the more power you have.
Take the course, ask the pressing questions, watch the documentary, talk to the experts – soak up as much information as you can.
Now is especially a great time to learn about investing. Learn how you can use your money to your advantage. When you understand the basics of investing, you’re able to build more wealth over time.
11 – Invest in yourself
The greatest investment you’ll ever make is in yourself. Investing in yourself could mean that you purchase materials – courses, books, etc. – that further your education or it could mean investing in things that’ll pay off in the future like a retirement fund, the stock market, bitcoin, real estate, etc.
Either way, it’s important to show up for yourself in life and prepare for the future now. Even if you contribute very little money into a savings account each month, it’ll still pay off major in the long run. Think about how much money you’ll have saved up in 40+ years?
The key, though, is to start now and stay consistent. The longer you wait, the less you’ll make in the end.
A few years ago I knew nothing about finances. Now, I’ve built a profitable business for myself and am living life debt-free. I promise that getting your finances in order isn’t an impossible task, and if you work on it now, it will pay off big time in the future!
That’s the key though, you have to start now – don’t wait.
Totally agree with the budgeting! I absolutely don’t realize at all how much I’m spending unless I carefully track it. I used to try implementing apps but then I realized that a simple spreadsheet (the template that comes with Google Sheets) works best for me. Also, about the credit card thing, I was having a conversation with my dad recently (I’m 18) and he mentioned that I should consider getting a credit card even if I didn’t need one, he said it would boost my credit score if I made all of my payments on time. I had never even heard of that so I thought it was really interesting! But even if I do end up getting one, I will for sure try to avoid using it as much as possible 🙂
Beatrice | The Bliss Bean
Haylie Ellison says
Nice! And I agree that opening a credit card can help build credit. The only reason I choose not to is because I know me and I think I’d overspend on the credit card and never pay it back on time 😂 But that’s just me. Plus I’ve managed to build enough credit from paying off student loans on time. That is really interesting though and if you have enough self control to not overspend and make the payments on time then I say go for it.
Yeah in the UK it’s a bit different. I’m thinking of getting a credit card because I don’t have a credit rating. I don’t earn enough at the moment to pay back my student loan and unfortunately they don’t include paying rent on time etc. So even though I’ve never been in debt, I probably wouldn’t get accepted for a mortgage (not that I can afford a deposit any time soon) because it’s seen as better to be in debt and have proof you can pay money back? It all seems a bit backward to me… But that’s why I want to get a credit card!