As you enter your early adult years, one of the most important things you can do is work to manage your money. With early financial planning, your dream of achieving financial security and freedom can become a reality.
Now is the time to build good money habits so your finances are one less thing to worry about. Here are some of the top tips for financial planning in your 20s.
Top 4 Financial Planning Tips
Create A Budget
As you start bringing in money, you need to plan for where your dollars go. Without a solid budget, you risk under-saving and overspending. As you make a steady income, you need to differentiate between what you want, what you need, and your dreams.
To create a budget:
- List your daily expenses
- List your monthly payments (ie. housing, utilities, credit card payments, etc.)
- Write down the dollar amount of each
- Add expenses and bills together
Creating a budget is an important part of financial planning as it allows you to see where your money is going. You may be surprised by how much you’re spending on take-out or other expenses!
Plan To Pay off Debt
Most young adults have debt. According to Experian’s 2020 State of Credit report, those ages 24 and younger average almost $11,000 in non-mortgage debt. Millennials, aged 25-40, have an average of $27,251 in debt.
Debt may be extremely common, but don’t fall into the trap of letting it linger or letting it grow. Whether you have student loans or credit card debt to tackle, there’s no better time than now to create a debt-repayment plan.
You can choose to pay off your highest interest rate debt first while continuing to pay at least the minimum payment on other balances. Or, pay off your lowest debt first, which is a great way to reduce your total debt load.
Build Your Emergency Fund
Unexpected expenses happen. Whether you want to call it an emergency fund or a rainy-day fund, what’s most important is that you have one. The purpose of this account is to have money set aside that you can use in the event of an emergency.
Aim to save at least three to six months’ worth of expenses in a separate savings account. If possible, create a budget that enables you to pay off debt while saving so that you’re covered from all financial angles.
Start Saving for Retirement
In your 20s, retirement is decades away. While time is on your side, this won’t always be the case. Though it doesn’t feel like it now, your retirement years will creep up on you. The sooner you start saving for retirement, the better. Compounding interest is your best friend and will serve you well when it comes to building your nest egg. Consider this highly relatable scenario:
Instead of looking at saving for retirement as less money in your paycheck each month, consider it automatic payments to provide for your future self.
To best benefit from early retirement savings:
- Set up automatic deductions
- Contribute as much as possible to receive top employer match
- Work with a retirement planner
The sooner you start saving, the more likely it is that you can turn your retirement dreams you’re your reality.
In your 20s, financial planning may seem overly complicated and not-so-important. However, creating a solid foundation now will serve you well for years in the future. To learn how our financial planning services can help you, contact Satty, Levine & Ciacco, CPAs, P.C. today!