The financial decisions taken during the 20s can set the stage for days to come. This is why it is advisable to build healthy financial habits which can benefit you over time. Today we have listed some money skills you need to master during your 20s and your future self will be thanking you.
Stay away from credit card debt
Credit card debt should be avoided in the long run as a high-interest credit card debt can leech away your financial wealth and ruin your monetary position. The 20s is a time of our student life with limited revenue yet rapidly building expenses. Often youths apply for multiple credit cards to keep up with their financial requirements but this entraps them in a vicious cycle that is impossible to get out of. It can take years to finally become debt-free.
Don’t borrow other than for education
Borrowing might seem like a lucrative proposition if your friends are planning on going on a trip and you are low on finances. But you should refrain from spending recklessly and limit your borrowing to educational purposes. As a rule of thumb, your loan amount shouldn’t be bigger than what is required to make it work. You will be required to pay back the loans after graduation. But while repaying the loans, make sure you don’t get caught up in student loan consolidation scams.
Be modest in spending your loan amount
If you need to borrow for something like buying a car or building a home, then be modest about your expenses. You don’t need to go overboard with buying the fanciest sports car and decorating your home like a page-3 celeb if you can’t afford it in the first place.
Pay proper attention to credit building
Though it’s advisable to buy things only when you have adequate funds in your bank account, it also pays to build a stellar credit history. A good credit score is more advantageous than availing the best interest rate on a bank loan. The credit score also helps determine security deposits and insurance rates. It’s not uncommon for corporates to go through the credit report of prospective candidates while conducting background checks before giving the job. The fastest way of credit building is getting a credit card and using it carefully once or twice a month for items you can pay off in full at the earliest. You should make sure to never carry a balance over to the next month.
Never miss out on bill payments
It’s vital to pay your bills timely, be it for your daily utilities, phone plan, or other items. Missing out on payment can have grave consequences in the long run like decreasing your credit score.
Open a checking account
A checking account should be opened at some point in your 20s. In basic terms, it will mean that you are ready to ditch having a joint account with your parents and start managing your finances. Many credit unions and banks offer free checking accounts to students and these come with various benefits. As a result, you won’t have to worry about paying hefty bank fees.
Open a savings account
Opening a high-yield savings account can help you enjoy a good amount of return. Though your income might be limited at this stage, try to set up a schedule for regularly adding money to your account. The amount might be small, but the main thing is developing a saving habit.
Open a retirement account
If you don’t want to survive on ramen noodles, then it’s imperative to start retirement planning at the earliest. Timely investment can help you end up with a humongous fund in your retirement corpus. Rather than waiting for your 30s, open a retirement account as soon as you start earning income.
Broaden your investment knowledge
The 20s is a great time to learn about investing and improving your returns. You should try to understand the tricks of using dividend stocks to your advantage and investing in low-cost funds. On learning the basics of investing, you won’t have any difficulty in wealth building over time.
Get life insurance
We usually don’t bother about life insurance in our 20s but in reality, you can get a better rate if you start it early. The 20s is an excellent time to set the foundation for your family’s financial protection if you are planning on starting a family in a few years. Depending on your chosen term, you can easily find inexpensive term life insurance offering adequate coverage for the next 20 years. Since life insurance is a unilateral contract, you can stop it at any time. But these policies are usually very cheap and if you stop paying for them then it would be utter foolishness.
Get a side job
Given the changing economic conditions, even the most marketable of us are highly vulnerable to becoming jobless. This is why it is advisable to have a viable side hustle that can add to your income kitty. Once you cultivate an alternative income stream, you won’t have to rely heavily on a single source.
Create a budget
Base your budget or spending plan according to your priorities so that you can put together a plan for your money. First, you need to understand your cash flow to determine the money coming in each month and the expenses that will have to be paid. Though you don’t need to count every dollar, having a budget can help you be on track and meet your goals on time.
Irrespective of your philosophy of life, money is a living necessity. However, it is merely a tool, rather than an end goal. Though you should strive towards adding to your financial kitty, sacrificing everything else for money will simply make you miss the big picture of life.
