For many of us, our mid to late 20s are the first time in our lives that we have started earning a handsome pay cheque and seriously thinking about our finances
There are so many other important life choices swirling around at this point –work choices, relationships, whether you have children, where and for how long to travel – but building healthy finance habits is key for all of these.
Not everyone in their 20s are putting future finances as important! But a smart approach to money now will help you achieve and exceed your goals for the rest of your life.
1. Get your spending under control now
You’re earning good money, and so what is the harm in treating yourself again…. and again… and again? If you allow your spending to go unfettered and unchallenged, you will end up in a financial mess.
Learning responsible spending habits now will sent you up for the rest of your life. A smart system is the 50/30/20 budget. This amounts to spending 50% of your income on bills (including rent and food), 30% on things that you want, and putting the remaining 20% in a savings plan.
2. Start saving money regularly
Now that you have a budget that manages your spending, you need to get serious about saving. If you struggle to put money into your savings at the end of your pay period, try switching things around.
Your savings should be deposited directly into a savings account right off the top. Your first priority should be to build an emergency fund that can cover at least 6 months of living expenses. After you have achieved this, you can move on to other long term and short term goals.
3. Start building your credit
You have probably heard the term ‘credit score’ bandied about, but now it is time to get serious and start focusing on building yours up.
Bad credit (or even no credit) can really hinder you when you want to buy a car, house or get a loan, and good credit can make your life a lot easier. Start by checking your score, and then building it up. You can do this by paying your bills on time and keeping consumer debt in check.
4. Start – and continue – saving for your retirement
You might be thinking, ‘but you covered savings above!’ We cannot overstate just how important saving for retirement is to your future health and happiness. Even though it is decades away, your retirement fund needs to be one of your top priorities. In fact, it is those very decades that make this such an urgent matter, owing to compound interest. This refers to the process that allows you to earn interest on both your saved money and on the interest on those savings.
Double interest! The earlier you start, the better off you will be when you reach your golden years.