If you are in your 20s, you are in a crucial stage in life. The decisions you make can have a huge impact in the future, especially your financial situation. You can end up saddled with debt or you can be stress-free and financially stable when you hit your 30s. Of course, you want the latter, which is why it is a good idea to set some basic goals to help you become as money-savvy as possible.
1. Build an Emergency Fund
Student loans, traveling with friends, going to parties, and more are all inevitable obstacles to savings goals in your 20s. Even setting aside $1 can be a challenge, so how much more if you need to start an emergency fund?
It was one of many money-related questions I started asking myself after college. However, I later realized that you do need this type of savings, which will help you in case you lose your job or an emergency situation. It does not have to be huge at first, especially considering you may only have a beginner level income. Start with at least a $500 goal and build it up from there.
Today, it’s so much easier to start a building an emergency fund thanks to apps like Qapital and Digit. If only these apps existed when I was in my early twenties- Sigh! Well, the important thing is that I’m using them now and it has helped me tremendously with reaching my saving goals.
These free apps help you put money away automatically to help you save for things that are most important. With goals and rules, you can supercharge your savings with minimal effort. I’ve already saved over $600 since using both apps for 7 months.
2. Start Investing
When it comes to investing, it is best to start early so you can benefit from the compounding interest. As a result, your money grows quicker than if you wait when you are in your 30s. A financial adviser can help so you know which type of investment will work. If you understand how the stock market works, you can invest on your own through a brokerage firm online.
3. Focus on Retirement
Since you are still young, you probably view retirement as a very distant future. Time moves swiftly and young people these days typically have jobs with a retirement plan. You should prioritize your retirement savings. Most people want to retire early and you should begin saving early if you have the same goal.
Take advantage of your company’s 401K plan if it exists. If your employer matches your 401K contributions, you should also provide enough funds to maximize this percentage.
4. Start Making a Habit of Saving Money
Saving should start early, specifically once you have reached a comfortable place with regard to your salary. It means that once your salary can help pay off your student loan debt, you should focus on building your savings while you still have no mortgage and children.
You don’t have to set aside huge amount of money just to say you have savings. A tried and true method is to start small, such as $10 weekly (maybe cutback on those Starbucks runs). You can build it up from here, particularly whenever you get a raise. Make sure that you don’t touch your savings account, which you can put to good use later in life. Again a savings app like Qapital would be perfect for this because you can put goals or rules in place so you have more control on how much you desire to save.
5. Save for a Down Payment on a House
You surely don’t want to keep renting, which can hurt your finances in the future. Believe it or not, owning a house will give you more savings despite the huge mortgage payments you have to make. The best way to own a house is to save up for its down payment. You may not end up buying a home while you are still in your 20s but it should be on your list of priorities.
The amount you save for your future house will depend on the stability of your job. You should also consider your job plans, such as whether or not you want to stay where you are right now or move to another city.
In most cases, down payment on a home is approximately 20% of its whole purchase price. However, if you can provide a larger down payment, it can lower your mortgage payments. Additionally, the house you buy can be much nicer based on your available funds.
If possible, try to avoid getting private mortgage insurance and instead aim for securing a large sum for the down payment.
6. Underspend on Rent
Paying a big amount on rent can restrict your ability to pay for anything else and even save some cash for your rainy day fund. If you can cut costs, start with your rent. Minimize your rent costs up to 30% of your monthly salary. For instance, if you earn $5,000 every month after taxes, you should only pay up to $1,500 for your rent.
Also, you should never skip paying your rent. The amount can accumulate easily. You can end up being forced to pay more than you can afford, which can lead to more debt.
7. Get Insured
Unfortunate situations can happen, which is why you need to save money as much as you can. Another good way to avoid expenses you cannot afford is to have the right insurance. Even if you have some money set aside, it can quickly disappear after an accident or if you get sick, for example.
You may think you don’t need dental or health insurance for now. You may be as healthy as a horse and you rarely get sick but disasters can hit anyone. As long as you are covered, you will be able to afford unexpected expenses that can easily derail your finances.
The truth is that being organized can be such a huge challenge. It is especially true when you are in your 20s when you should start saving money. However, it doesn’t have to be a difficult task, especially when you put your mind to it. When you have the right goals in place, you can have a stress-free financial life by the time you hit your 30s.