Finance tips for your twenties.
The twenties were some of the best years of my life. It’s a wonderful time when the entire future lays ahead of you and you feel ready to conquer the world. This is also a time when a lot of personal growth and learning occurs. You make big decisions that have big consequences on your future. One of the most important of those decisions how to manage your money. Oh how I remember being young (and dare I say naive….). I thought life would go exactly as planned and money would never be an issue…boy was I wrong! I so wish someone, anyone, had sat me down and taught me more about finances. Sure, I understood that I should spend less than I made and that you had to work for money….but there were some important things I was very ignorant of. So today I am going to share those lessons with you. Here are a few things I think you should know about money in your twenties.
1. Start Saving For Retirement ASAP
One of the most important things you should know about money in your twenties is to start saving for retirement asap!
I know in these early adult years retirement feels forever away.
Guess what? It’s not. The retirement years are going to come quicker than you think.
The day you start earning money is the day you should start investing into a retirement savings account, such as a 401k or IRA. Time is your friend when it comes to investing and compound interest. So, start early!
- Related: 3 Steps to a Long Term Savings Goal
2. Budgets Are For Everybody
For about half of my twenties I didn’t think I needed a budget. I never spent more than we earned, so I felt confident in my money management skills.
After reading Dave Ramsey’s Total Money Makeover my views on money shifted drastically. I realized that a budget is for EVERYBODY, and we could have more money if we started budgeting.
The next day my husband and I sat down and made our first budget. We weren’t pros at the beginning….as a matter of fact we failed many times. But through practice and patience we mastered budgeting and our finances improved.
Everyone should be budgeting, it doesn’t matter how much money you make or save. A budget will help you help you save even more and help you control your spending.
- Related: How to Make a Zero Based Budget
3. You Need An Emergency Fund (and probably a bigger one than you think)
In your twenties it’s easy to feel as if all the bad things only happen to other people….never to you.
I’m here to tell you, that they do and will happen to you too, unfortunately.
I don’t know what will occur in your future, but I do know that you need an emergency fund to cover any expenses or circumstances that might come your way.
Try to save a minimum of 6 months living expenses in your emergency fund. This will give you enough to cover most emergencies without feeling stressed about the distant future.
4. Debt Is Dumb
You will run across many advertisements trying to convince you to sign up for this credit card or buy that piece of furniture on credit. You will hear phrases like, “0% down” or “no payments for one year!” Many people will tell you it’s normal to pay off debt. It becomes confusing as you try to weed through what’s correct and what’s not.
I’m here to tell you that debt is just dumb. Period. It will only bring you financial stress in your future.
Stay out of debt! Remember, if you save up and pay cash for something, rather than buying it on credit, you will end up spending less in the long run! No debt=no interest!
The only thing I recommend anybody going into debt for is to buy a house.
- Related: Debt Snowball Or Debt Avalanche
5. Your Tax Refund Is Not Free Money
I remember the time my husband and I got our first tax refund back in the mail. It felt like free money just being handed to us. I basically thought it was the best thing ever and immediately started planning all the fun ways to spend this new found money.
What I WISH someone had told me was that a tax refund is NOT free money.
In fact it is money that you worked hard for and EARNED……and then loaned to the government interest free.
If you do receive a tax return remember that this is not free money, it’s money that you earned and should be used wisely. I suggest using it to pay off debt, grow your emergency fund, or to help you save for a big upcoming purchase.
6. You Don’t Need a Fancy Car
In my twenties I truly thought I needed a brand new car to “officially” become an adult (insert eye roll here).
Oh, how wrong I was!
I’m here to tell you that you do not need a fancy car. If you want one, and can pay cash for it, go for it, but it is so not necessary. Cars are known for losing their value quickly. In fact, cars will lose around 15% of their value EACH year, that’s a lot of wasted cash.
Look for a vehicle that will be safe, reliable and fuel efficient. Look for one that will be able to grow with you as your life changes throughout the years. Most importantly, look for one that you can afford.
7. Bills Are Negotiable
Your bills are negotiable! Don’t ever be afraid of asking for a better rate or cheaper amount. The trick is speaking up, knowing your facts, and being polite.
You will find big savings each month if you begin negotiating your bills.
- Related: 5 Bills You Should Negotiate
8. Just Because You Can Afford It Doesn’t Mean You Need to Buy It
This is an important one so listen up.
Just because you have the cash to buy something right now…doesn’t mean that you need to buy it right now.
Don’t give in to your impulses and the flashy sales that will come your way. You worked hard for your money and shouldn’t blow it on items you won’t value in the long run.
When choosing whether to buy something or not ask yourself these simple questions:
“Do I need this?”
“Did I budget for this?”
“Will I use this for many years?”
If you can answer yes to all three of these questions, than it is a good buy. If you answer no to any of them, I would wait a few days before making the purchase. This gives you the time to make an informed decision, rather than buying on impulse.
9. Credit Cards Are Great…..If You Use Them Correctly
I am a HUGE fan of credit cards in my own life. I use them regularly and love the cash back that I can earn from them. Each of my credit cards are paid off in full every month and I always spend within my budget.
When I was in my twenties, I had heard many people say that credit cards were bad….so I didn’t use them. Later down the road, as I learned and studied more I realized I was missing out on a lot of rewards.
I now use credit cards regularly and would never go back. If you are wise with your money I encourage you to look into a few reward credit cards. We personally use a Discover Card and love the cashback earned each month.
HOWEVER! There is a big but here!
If you struggle with constant over spending, are often over budget, and have a history of credit card debt, I would advise you not to open a credit card. In this instance the rewards are just not worth the risk of overspending.
The twenties were one of my favorite times of my life. It was when I truly grew and found myself. Enjoy this time while you are in it, but never forget that the future isn’t as far away as it might feel, and finances matter. I hope these tips helped you learn how to manage money in your twenties.