Your 20s are an incredibly thrilling decade – you’re advancing in your career and earning more money, figuring out where you want to live, and making major decisions that will set the tone for the rest of your life.
And, while you’re 20-somethings are incredibly exciting, they can also be somewhat challenging. For some of us, it’s the first time we are dealing with a lot of adult responsibilities like managing a paycheck, paying for rent, health care on our own, getting out of debt, and saving for our future. Adulting is tough, and it can all be very overwhelming – and that is exactly why it’s incredibly important to establish good money habits now.
While your financial situation may be tight right now, you should still be saving and investing your money. “But, I can barely afford to make rent every month. Isn’t investing for when you’re older and making real money?” you might wonder. The simple answer to that is: No.
According to Sallie Krawcheck, CEO and co-founder Ellevest, a money management firm targeting women, “Waiting to invest costs real money – and getting your finances in order at a young age is important for setting up a life of financial success, especially for women who face certain obstacles when it comes to building wealth.” You’d be incredibly surprised at how much you can save over the span of just 10 years when you start investing in your 20s. For example, according to The Basics for Investing in Stocks, 10% is the average annual return the stock markets have produced since 1926, which is higher than if you kept your money in a savings account. OK, we’re already feeling inspired to save and invest. How about you?
Below, you’ll find 5 money moves from the experts that will set you up for financial success.
PAY OFF HIGH-INTEREST DEBT
Seriously. If you have any kind of balance on a credit card, stop using it and pay it off. Nothing is worse than paying 10-15% interest (or more). This interest is higher than any returns you could see from investing, so make this a priority and drop that credit card balance.
This interest is higher than any returns you could see from investing, so make this a priority and drop that credit card balance. Hide your credit cards and stop spending until the balance is paid off. When you’re ready to be responsible, start using it for small purchases and pay off the entire balance each month. As for your student loan/any other debt? Refinance any interest rates that are in the double-digits.
BUILD GOOD CREDIT
Paying your bills on time will build your credit. Yes, that includes your rent, phone bill, medical bills, student loans and more. Do it for enough time and you’ll end up with an excellent credit score!
While on the topic of credit, check your credit activity. Either purchase a software such as LifeLock that will alert you when your credit is checked or freeze your credit until you know you’ll need to apply for anything (such as rental application, loans, etc.) See you never identity thieves.
CONTRIBUTE TO YOUR RETIREMENT
When you first enter the workplace, retirement is the last thing on your mind.
However, the earlier you start stashing away for the future, the better. If your workplace offers a 401K or Roth 401K and matches up to a certain percentage, max that sucker out! It’s basically free money people! If a 401K isn’t an option, your best bet may be to contribute toward an IRA or Roth IRA (Individual Retirement Account). A good rule of thumb is to contribute 10-15% of your gross paycheck (including whatever your company matches.)
BUILD AN EMERGENCY FUND
“First, pay off your debt, then start building your emergency fund,” says Krawcheck. “Some people out there recommend building your fund before paying off debt. That is truly stupid advice,” she told CNNMoney. “Then you have cash that is earning close to zero, but you owe cash that is costing you 20%.” Once that debt is paid off, start building your emergency fund and setting financial goals that align with your future. Krawcheck suggests saving enough to cover one to three months of living expenses so you’ll be prepared if something unexpected happens — like getting laid off or an increase in bills.
INVEST AND SAVE FOR YOUR GOALS
You have personal and professional long-term goals that you work toward every day, why not have financial goals as well? Are you hoping to buy a home in the next few years? Take a month-long trip to the Mediterranean? Visualize all of your long-term goals and write them down in a safe place.
Once you have the emergency fund set aside, then it’s time to think about the big picture and start investing. “It’s risky,” you might say. “To get over the fear of losing money to the market,” Krawcheck advises investing 1% of each paycheck and increasing the percentage over time. “Pay yourself first. Do it every paycheck,” she says.