By John Brown
Your 20s are the perfect time to enjoy life, travel, and try new things. However, it can also be a good time to start your journey to financial success. The sooner you start, the better—particularly with saving, investing, and getting insured. Without further ado, let’s look at some of the fundamental money lessons you should remember in your 20s.
Set up a monthly budget.
When creating a monthly budget, you must compute your total income against your expenses. Record your cash flow for a month, and check for areas where you can maximize your savings by cutting down on buying things you don’t need. By setting up a monthly budget, savings are maximized, and cash flow is monitored. Once you have successfully set up a budget, stick to it.
Build a rainy day fund.
A rainy day or emergency fund will protect you from unforeseen circumstances affecting your financial life, such as medical emergencies, home and car repairs, or job loss. Financial experts advise setting aside at least three to six months’ expenses for your emergency fund. Not having an emergency fund will force your hand into finding alternative ways to get cash.
For example, one of the many options when you need cash now is a payday loan or personal loan from online lending platforms, where the application process is hassle-free and funds are dispensed fast. Although your credit score is not top-notch, you can still request a loan, as these companies are likely to work with borrowers of varying credit backgrounds.
Automate your savings.
Sometimes, when you know how much money is in your bank and how much you save each month, you will be tempted to spend it, especially when you know your savings are growing steadily. Automating your monthly savings will help you forget the money you’re setting aside. Your money will keep growing without you putting that much thought into it.
Learn to live below your means.
As American finance personality, Dave Ramsey once said, “Living on less than you make is a matter of controlling yourself, not a matter of math.” No matter how much you make, if you don’t learn to live below your means, you’ll have a hard time saving for your future. Living below your means will help you expand your net worth, and the sooner you learn this, the sooner you can achieve the financial freedom you’ve always longed for.
Make a habit of checking your credit report.
Financial experts advise checking your credit report at least once every three months to ensure its accuracy. Once you detect inaccuracies in your report, you can take appropriate measures to have them corrected. Checking your credit report will also provide precious insight into your financial life and help you pinpoint what you can do to improve your credit score.
You can get a yearly free copy of your credit report from an official site called AnnualCreditReport.com.
Steer clear of bad debt.
Bad debt is a debt you incur that doesn’t add to your net worth or boost your income. Examples include credit card debt, personal loans, and auto loans. Auto loans can be either good or bad. If you purchase a car that isn’t necessary for you to earn money or one that’s beyond what you can afford, your auto loan becomes bad debt. Debt can sometimes take years to get out of, so young adults like you should be careful and think hard before applying for one.
Creating a solid financial plan involves protecting your assets. You can do this by getting insured while you’re still young. The following are the insurance policies that everyone should have if they want financial freedom:
- Life insurance
- Long-term disability insurance
- Health insurance
- Homeowner’s or renter’s insurance
- Car insurance
Taking these steps while you’re still a young adult can ensure that you’ll have a more comfortable life when you retire. Learning these money lessons in your 20s will also help you retire at your desired age.
John is a financial analyst but also a man of different interests. He enjoys writing about money and giving financial tips, but he can also dive into relationships, sports, gaming, and other topics. Lives in New York with his wife and a cat.