Your 20s are an exciting time that can be filled with many milestones – moving for work, starting a business, getting married, buying a home, and more. While this can be a busy time of life, you should prioritize making smart financial choices as a young adult to help set yourself up for long-term financial success. Here are a few of the top money moves I recommend young adults make in their 20s.
Establish an Emergency Fund
One of the foundational and most important things you can do right away once you begin your adult life is create an emergency fund. An emergency fund acts as a cushion for when an unexpected emergency happens. Whether it be a family crisis, medical bills, or car repairs, this money will help you avoid both debt and added stress.
So, how much should be in your emergency fund? I recommend you put away enough money to cover 3-6 months’ worth of expenses. But I understand that most young adults aren’t making enough to save that amount quickly. My best advice is to keep contributing to your emergency fund until you reach this point, and remember, saving something is always better than nothing.
Set a Budget
While budgeting may get a bad rap for being tedious and time consuming, understanding when and where you are earning and spending is key to having control of your finances. Many times, budgeting can be done with minimal effort as there are many budgeting tools to make it as easy as possible. These tools allow you to have everything in order in one place. Budgeting is a great way to hold yourself accountable and take control of all your finances.
Save for Retirement
In a report done by the National Institute on Retirement Security, they found that almost two of every three 21-to 32-year-olds haven’t saved anything for retirement. The younger you start saving, the more potential reward there can be once you reach your golden years.
A great place to start is to see if your company offers a 401(k). If they do, take advantage of it, especially if they offer a match. If they don’t offer a 401(k), a Roth IRA is another great option that allows you to save with the possibility of being rolled into a future employer sponsored retirement plan. The most important thing is to be diligent and contribute to your retirement account now; don’t miss out on years of compounding interest by waiting.
Establish Good Credit
It may seem difficult to have a good credit score when you are young and on a tight budget, but there are small ways you can establish good credit.
- Be disciplined in paying bills on time. To avoid being late and scrambling last minute, include all of your bill payments in your monthly budget.
- Don’t rack up unnecessary debt. The most common mistake young adults make is racking up credit card debt. If you have a credit card, be aware of how much you are spending and pay it off on time.
- Make smart choices. Think twice about major purchases you think you may need that don’t fit into your budget. Ask yourself, “Can I really afford this right now?”
Pay Off Student Loan Debt
There is one thing almost everyone can agree on – college is expensive. In 2022, about 56% of students at four-year institutions had to take on student loans. Luckily, budgeting gives you a leg up in prioritizing student loan payments. It is important to include your monthly student loan payments in your budget so they are paid on time.
Read this article for more strategies on paying off student loans.
Making smart money moves in your 20s has many long-term benefits. By prioritizing the above financial wellbeing strategies early, you can help alleviate potential future stress and set yourself up to achieve your long-term goals.