7 Tips for Money Management in Your 20s
7 financial tips to start managing your personal finances in your 20s. The money rules you need to know.
In your twenties, you're likely to be in a transitional phase of your life. You might be kicking off your career take up your first job and start earning. It may seem like you don't have to worry about money as much as you'd have to as an adult. But as time goes on, you will start realizing the significance of money management.
Although you believe you have got a little bit of freedom now that you are earning, here are some questions you might want to ask yourself:
How are you supposed to save for your dream car or tour?
Do you need to have an emergency fund?
How well are you prepared if any medical emergency occurs?
Where does a large portion of your salary go?
What should you do to start investing?
The thing is it can be hard to figure out the best way to handle money. Hopefully, the seven tips shared in this blog will help you get on track with effectively handling your finances.
The Money Management Tips You Need to Know
1. Save, save, save
We all want to be financially independent and successful at the end of our working life. Unfortunately, most people fail in achieving that goal or remain in the rat race because they do not save for their financial future.
It's easy to go over budget on any number of expenses including housing, transportation, food, etc. It is so easy to get caught up in the excitement of buying branded clothes, shoes, bags, expensive gadgets, taking up unplanned travel, and so on. But saving money at this age is more important than you think.
Saving is something that people of all ages should practice, but it becomes even more important in your twenties. You never know what will happen in the future, so you must save while you are young and healthy.
2. Pay off your credit card bill in full every month
One of the biggest mistakes young people make is charging up their credit cards and paying only the minimum due each month. It is the fastest way of landing up in the debt trap because you will end up paying much more in the interest than you will on the actual bill.
Did you know that the credit card companies charge monthly interest at the rate of 3-4 percent on your unpaid outstanding dues, i.e., 36-48 percent interest yearly!
Get into the habit of paying off your credit cards in full each month—for one simple reason: It is easier than worrying about an ever-growing balance. And if you've ever juggled multiple balances on different cards, you know how stressful it can be to keep track of your payments each month. Pay the outstanding amount in full by the due date to avoid the interest cost.
Paying credit card bills in full on time also helps you improve your credit score. And a good credit score may avail you benefits such as loans at a lower interest rate, eligibility to get a higher loan amount, discount on the processing fee.
3. Budget your expenses and stick to it
Many people worry about their spending habits and find it challenging to keep a track of how much they spend on different things every month. Tracking expenses can be a terrible task, even for the most organized people. However, understanding where every penny is going prevents money from being wasted.
Budgeting can be a pain, but making a budget is necessary if you want to have a good handle on your finances. Amid all the bills and expenses, it is hard to know where your money is going, so a budget is a tool that helps you manage your money. It ensures that you won’t spend your money on a whim, and it also keeps a check on your spending.
You must keep track of your expenses. Many people simply do not bother and leave it up to their memory. Unfortunately, everybody does not have razor-sharp memory. We tend to forget certain things, which may lead us to end up spending much more than we actually should. Tracking your expenses doesn't have to be a hassle or time-consuming. There are plenty of apps and online tools available that you can use to track expenses. You can make a budget by the pen-paper method also and update it every day.
4. Build an emergency fund
With the current state of job security, it is more important than ever to have an emergency fund. It is essential to have an emergency fund ready before something unexpected happens. You never know when you'll need some extra cash, so be prepared!
An emergency fund (contingency fund or rainy day fund) is a corpus set aside to provide a financial safety net for unplanned expenses or life's unexpected events. It acts as a financial buffer that can keep you afloat in a time of need without having to rely on somebody else's help.
There could be endless reasons why you should have an emergency fund. It could be anything – major fixes for your home or car, unforeseen medical expenses, loss of a job, and so on. The point is, there will always be something unexpected in life, and having money set aside for those challenging times can make all the difference.
Do you know how much it takes to save up for an emergency fund? A simple rule of thumb is 6 months of your household expenses or simply, 6 full salaries. If you can afford to put aside more than that, even better!
5. Plan your financial goals
No matter how young you are, it's never too early to start financial planning for what you'll do with your money in the future. A goal without a plan is just a daydream. You need to have an action plan ready that will act as your guide in accomplishing your goals in time, creating wealth, and securing a financial future.
Financial planning is the process of defining your current financial situation, determining what you want to achieve in the future with your finances, and creating a plan for how to achieve your goals. It allows you to make the most of your resources and helps ensure you meet your future goals.
Why should you have financial goals? Here are some reasons -
It helps you make progress toward your future, whether it be a world tour or paying off debt or so.
It will help you feel more secure about the future and less worried about how to make ends meet.
Financial goals will help motivate you in reaching milestones in life.
Carefully done financial planning gives you insights on the amount that you will be requiring in the future and the investment that you need to make to achieve all your goals. If you don't do the hard work of getting your financial house in order, you can kiss all hopes of wealth goodbye.
6. Get insurance
One of the most crucial aspects of financial planning is having health and life insurance. Most people think that insurance is for older people. But that is not correct. Insurance is necessary at any age, not just when you have a family to look after, or you get a job.
Health and life insurance are a must-have for every individual, but more so for those in their 20s. While it might seem like the last thing you want to do when you're looking to save some money, you'll be thankful that you took that step as time goes by. The younger you start, the cheaper it is, the higher the benefits you shall reap.
Having sufficient health insurance cover can make all the difference between paying for an expensive procedure or not being able to pay for it at all. You don't want to end up in this situation. Life insurance is a great way to protect your loved ones from financial hardship in the event of your untimely passing. If you are planning on starting a family soon, it is prudent to get life insurance while you're young and healthy.
Don't just see how much insurance costs you, see what it can do for you. It is not just a protection; it is a tool to better plan your future expenses. It gives you peace of mind.
7. Start investing early
Investing is all about time, so start investing early to have more time for your money to grow. Saving money, spending less, and investing early can be the best way to build wealth. Being an early investor allows you to ride out any ups and downs that come by with any investment, giving enough time for your investment to mature. “Time in the market beats timing the market".
If you start investing in your 20s, you will have a huge head start on retirement compared to someone who starts when he or she is in their 30s. The earlier you begin investing, the more time compounding will have to work its magic.
Should you need any help getting started or have any questions about how to invest and avoid common pitfalls, contact us today!
The key to achieving your financial goals is developing good money habits. Following these 7 tips should help ensure you're on the right financial track during your 20s.
For a more in-depth analysis of your finances and a personalized plan of action, request a consultation with our wealth advisors. Our wealth advisors would be more than happy to help you create a plan for you. To begin planning for the future of your finances get in touch with us.