Your 20s is a decade to establish a strong financial foundation. Whether you’re beginning your first job, pursuing further education or starting your own business, this is a time of exploration and growth. Here are key strategies to help manage your finances effectively during these early adult years so you can enjoy yourself more now — and set yourself up for greater financial security in the future.
Creating a Budget
Money can often be tight in your 20s, making it even more critical to create and stick to a budget. Effective budgeting helps you track your income and expenses so that you can live within your means. Start by listing all your sources of income and then itemize your monthly fixed and variable expenses, including rent, utilities, groceries and entertainment. For annual expenses, divide your total cost by 12 and add that number to your monthly budget. Knowing and tracking your expenditures will help you identify areas where you can cut back, if necessary, in order to save more.
Putting the Basics in Place
Prioritize establishing an emergency fund with three-to-six months’ worth of living expenses to cover unexpected costs. Additionally, consider setting up separate savings accounts for different financial goals, such as a travel fund or a down payment on a house.
Avoiding High-interest Debt
Debt can be a significant burden for young earners — especially high-interest debt like credit cards. It can be easy to get in over your head, so focus on paying off these debts as quickly as possible. Use strategies like the avalanche method, which targets high-interest debts first, or the snowball method, which pays off smaller debts first to build momentum. You can minimize the risk of taking on new debt by living within your means and keeping an eye on budget creep as you begin to earn more.
Getting an Early Start on Retirement
Retirement may seem far off, and you may feel like you don’t earn enough to spare. In fact, the average Gen Zer says they’d need to earn at least $193,000 a year to feel financially comfortable. Nonetheless, managing to squirrel money away, even if there’s not much left over at the end of the month, can give you a significant advantage over those who wait to start. According to Bankrate, saving just $200 per month starting at age 22 could net you more than $1.2 million in retirement savings by age 70 (assuming an 8% average annual rate of return). So begin contributing to your 401(k) as soon as you can, even if it’s just a small amount. Try to contribute enough to maximize any employer match, as this is essentially free money toward your retirement. If your company retirement plan offers an auto-escalation feature, consider taking advantage of it to ramp up your contributions each year, without having to remember to do so. You can always opt out, and this is a great way to help ensure your retirement savings can grow as you earn more.
Working With a Financial Professional
You may feel intimidated about working with a Financial Professional if you’ve never done so before, but it’s important to get comfortable with someone who can help you navigate the sometimes-complex financial decisions you may face. They can provide personalized advice tailored to your unique situation, helping you set and achieve your financial goals by assisting with investment strategies, debt management and retirement planning.
In your 20s, you’ve got time on your side — so put it to good use. With the right strategies and advice, you can pave the way toward a brighter financial future.
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