Finances might be an area that seems too “adult” to think about. But don’t worry, thinking about your finances isn’t as scary as you think! Now that you’re in your 20’s, it’s time to take baby steps into adulthood and make a plan to eventually reach financial independence! Here are four financial tasks to do while you are in your 20’s:
- Creating an emergency fund
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Emergency fund: money you set aside strictly for emergencies. This is for situations that come up unexpectedly and require a large amount of money quickly. An example is a medical emergency, home repair, car fixes, or unemployment. There is no way to know what will happen in the future, so having an emergency fund is a good way to keep yourself afloat in case a situation comes up and puts a big dent into your finances.
How much?: Ideally, it would be best to save as much as you can, but you should aim to save around up to six months of living expenses.
How to begin?:
1. Start tracking your budgets every month. This will help you create an estimate of how much you are spending every month. Don’t forget to include all your monthly subscriptions, utilities, rent, groceries and dining out expenses. Your estimates will most likely vary every month, so try to just get a good estimate when calculating how much to set aside.
2. Set up a high-yield savings account to deposit your money. This is a bank account separate from your checking account, which is one that you use regularly. You should not use the money from your savings account unless it’s for an emergency. Look online to find the best savings account appropriate for your financial goals.
3. After you figure out your monthly expenses, set a monthly savings goal. A good way to go about this is to set up an automatic transfer of funds from your checking account to your savings account.
- Getting rid of debt
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Debt: something, usually money, that is owed or due. Debt is one of those things that can get out of control and accumulate extremely fast if it’s not taken care of quickly. Interest is a scary thing to deal with, so it’s better to not have debt in the first place. But, if you do take out loans, whether it’s for a home, car, school, or any big purchase, it’s important to make sure that you can pay them off in time.
What to do?:
1. Write down all of the debt that you owe. It’s best if you write it into a spreadsheet. Include the amount of money owed, due date, interest rate, what the loan is for, whether it has been paid off or not, how much is left to pay off, and the goal date to completely pay back the money.
2. Make a plan to pay off a certain amount every single week or month depending on how urgently this loan must be paid off. Make sure to follow your schedule of repayment consistently to prevent getting off track.
3. Include these weekly or monthly loan payments into your budget.
- Creating a credit card
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Credit card: a small card issued by a bank, business, etc., to allow the holder to purchase goods or services on credit. It is very important to open up a credit card early on to build good credit. Having a good credit score will come in handy when you want to take out loans, buy a house or car and qualify for certain discounts and better terms.
How to get started?:
1. Before you get a credit card, have a good understanding of credit and your personal responsibility to pay your credit card bills on time. It is crucial for you to pay your credit card bills on time to maintain a good credit score.
2. Get a starter credit card. Do your research on what specific benefits you’d like to have through your credit card. For example, there are some cards that prioritize cash rewards based on your general expenses, but there are also some cards that give you rewards based on how much you travel. Depending on your lifestyle, find the right card for you.
3. As stated before, make sure to make your payments on time. Ideally, it would be best to pay off your entire bill, which can help you avoid interest. In the case that you can’t, it is okay to simply pay off the minimum amount. It is better than making a late payment that can significantly damage your credit score.
4. Maintain a low credit card balance. You should aim to spend below 30% of your available credit card limit. This is another factor that can impact your credit score.
5. Check your credit score from time to time to make sure that it is in a healthy range. It’s free to check your credit score through a major credit bureau. You can also check through Credit.com, which allows you to check your credit score for free!
- Investing
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Investing: committing a certain amount of money in order to earn a financial return. Essentially, you put in a bit of money into the stock market with the goal of creating wealth. Investing is one of the major financial terms that tend to scare people away due to the unpredictable nature of the stock market. These days, there are a lot of different investing platforms, such as Robinhood or Fidelity that can help you get started.
How to get started?:
1. Do your research on investing. Make sure to look at credible sources to find a method of investing that works best for you. Some of your options include stocks, bonds, mutual funds and exchange-traded funds (ETFs).
2. Get started as early as possible. Time is on your side. The earlier you get started, the greater the financial return you can receive.
3. Once you decide on what method you’d like to choose, open up an investing account. You have two options: a brokerage account or a robo-advisor account. A brokerage account is a quick and cheap way to buy investments. Through a brokerage account, you can open up an individual retirement account. A robo-advisor is better for beginners who may need a bit of help in getting started. Through this service, they will ask you for your specific investing goals and help you build an investment profile that is suitable and appropriate for you. The only downside is that you may have to pay a little bit to manage this service.
Although it would be nice to learn about these things in school, learning through an online source is a good alternative. However, don’t forget to do a good amount of research using multiple sources to find out what is best and most realistic for you! One recommendation is to ask your friends about their financial journeys. Normalize talking about finances with your friends.
Thinking about your finances might seem a little intimidating, but taking the first step to becoming financially literate is a good place to start. Once you’re financially literate, you’ll have a good foundation to actually start implementing these tasks that will help you tremendously in the long term!