I’m turning 25 this year, so being halfway through my 20s, I’m trying to buckle down on my finances.
For millennials, this is most likely the time after college and before spouses and children. You’re making some money and enjoying every thing there is to do/see/drink/eat.
If you are reading this and you are thinking “yeah, this all sounds great, but I don’t have any wiggle room in my budget for saving and investing”, I strongly recommend taking another look at your monthly spending habits. If you can save just $50 a month and put that into your retirement account, it will have a lot bigger impact than you may think.
I’ve read it over and over again in blogs, books, and articles: Your twenties are a time for investing in yourself. Whether you invest in learning new skills, taking some time to travel, move out of the state you grew up in, or of course invest in your financial well-being.
“At age 20, we worry about what others think of us. At age 40, we don’t care what they think of us. At age 60, we discover they haven’t been thinking of us at all.” – Ann Landers
These following advice is just a few tips I have collected from all of my financial reading sources, from my father, and from financial advisors. Take these tips and do your own research…TODAY. There will always be that part of you who wants to put this off for another 6 months, a year, two years, but trust me, even the littlest bit of research will open your world up to see what possibilities are out there.
Open up a retirement account – and don’t touch it!
This is an important one. The earlier you start, the better. See what options your employer has, for example my company offers a pre-tax deferral 401K plan as well as an employee Roth deferral. In short, in a pre-tax 401K, the money goes in before taxes and the Roth goes in after taxes. Roth is good in the long run because the account will grow tax-free.
In your twenties, you should aim to be contributing 15% of your income into a retirement account. By the end of your twenties, you should have at least 1X your income saved in a retirement fund. This money will grow as you sleep and, thanks to compounding interest, will grow a lot faster if you start in your twenties vs. your thirties.
Diversify your portfolio
It’s always good to have a little more risk when you are younger. When you don’t have a mortgage, a spouse, or kids is when you should be investing more aggressively. Aim for about 50% of your investments to be in stocks.
Don’t have a lot of cash to be investing at the moment? Acorns is a great option. The app automatically rounds up your purchases from your credit and debit cards linked to the account and invests them in a personalized portfolio mix. Acorns additionally gives you the option of one-time deposits or monthly automatic deposits. The app allows you to pick what day you’d like to deposit, so I like to deposit in the beginning of the month, so I’m not tempted to spend that money.
How can I keep track of my investments? A really hot app right now is called Personal Capital. This app takes all of your assets and liabilities and organizes it all for you and calculates your net worth. The app even gives you tips on where they see opportunities in your portfolio. For example, last week I received an email alert suggesting I take a bit more of my cash from savings and invest that into an Index Fund. The app also gave me a charming alert of “you have spent $205 more this month than you did last month. See where we think you could be saving more money”.
Have an emergency fund
An emergency fund is ideally enough money so that if you need to take a few months off of work for personal reasons, you can. Only 40 percent of Americans say that they have $1,000 to cover an unexpected expense.
So what is an emergency fund? It can be defined a ton of different ways, but say you had to get a surgery that would put you out of work for 3 months. Sure your medical expenses would be covered from your health insurance [I hope that you have!], but how would you cover rent, car payments, car insurance, groceries, gas, utilities, etc. for those 3 months? That is what your emergency fund is for.
As we are all aware, life comes at you fast, and being prepared and secure is a great way to keep you on track for your financial goals. If you are sans-emergency fund, one quick trip to the auto body shop and charge to your credit card could turn into a snowball of debt.
Make more money than you did last year
This is for my side hustling 20 somethings. See what other streams of income you can incorporate into your life.
I believe a side hustle should be something you enjoy doing (at least a little!). If your side hustle makes you groan as much as your full time job, there is no way you will keep up with it. Currently, I am dipping my toes into reselling on eBay, selling on Amazon through FBA, and of course blogging!
My favorite podcasts for people interested in side hustling are Side Hustle School, Side Hustle Nation, and The Product Boss Podcast. These blogs take you through step by step how real people started their side hustles – which range from dropshipping bouncy castles, to independent marketing for small businesses, to catering companies.
My favorite blog Making Sense of Cents has a great list of 75 side hustles which gives an awesome range of side hustle ideas.
Know your credit score
Credit Karma offers you your credit score for FREE! Your credit score is a number calculated credit bureaus that determines your “creditworthyness”. It’s important to know your credit score now because you will need good credit later when you decide to purchase for example a home, a car, or take out a loan for a business.
Take control of your “bad debt”
First, it’s important to understand the difference between “good debt” and “bad debt”. Good debt is an investment that will grow in value, such as a mortgage. Bad debt is generate from purchasing things that will quickly depreciate in value or have a high interest rate, such as taking out a car loan or credit card debt.
Never ever ever ever pay just the minimum amount on your credit card. Your interest rate is probably around 25%, meaning if you charge $1,000 and pay only the minimum, you will now owe 25% of that $1,000 PLUS the original $1,000.
Kick one bad spending habit
When I got my first big girl paycheck, it was more money than I’d ever had in my account before. It was easy to justify spending $100 here, $100 there. The habit I decided to kick was my bi-monthly spending sprees at TJ Maxx. This store makes it so easy to spend $100 and think that you got a lot of value for you money.
I realized I was buying because I could and not buying because I needed these things.Take a look at your credit card statements and determine where you are spending the most, and what can be cut out. Eating out every weekend? Happy hours every Thursday? Nails done every 2 weeks? Amazon Prime addiction?
Invest in yourself
Your twenties are so important to invest in yourself because this is when you have the time and the energy. Investing in yourself does not have to break the bank. Talk to older adults who have been in your position and really listen to what advice they may have. Spend time with people who have the same mission as you.
Invest in books – I buy books from thrift stores or download through Prime Reading for free books.
Invest in courses through Code Academy, HubSpot, or General Assembly to learn a new skill.
Invest in experience – travel, meet new people, see the world through a different light.