Time is money.
Both are famous adages that hold a mountain of truth. Once we hit our twenties, life shifts into high gear, and many of us were not adequately prepared for what was to come. Earning money and money management are skills that often go overlooked in our younger years. Getting an early grasp on financial literacy is invaluable and can aid you from your youthful 20’s through your retirement. Here are 11 money management skills you need in your 20’s.
- Earn money. To be able to manage money, one must earn money. Whether it is a part/full-time job, or a side hustle, making money is necessary to have funds to manage.
- Develop a marketable skill. There are a variety of jobs, but having a marketable skill opens the door for a career. Be open to opportunities that involve your skill to earn some money. A marketable skill can be writing, doing hair, video editing, or anything that you enjoy that you can earn money from. Your skills may land you into the career of your dreams.
- Establish a budget. Once you are earning money, you can establish a budget. Without a budget, it is easy to overspend and under-save. It may seem tedious but keep track of your daily expenses. Review 1-3 months of your spending to see how much you spend versus how much you make. This is a perfect opportunity to see where you can save or direct your funds to be most efficient. Plan how much money you plan to save each month.
- Get bank accounts (checking/savings). Having a personal checking account is key to establishing financial maturity. Over time, you can use your account as a gauge of your spending each month. A checking/savings account is a way to secure your money rather than holding cash. High yield checking/savings accounts allow you to earn interest, but they often require a larger minimum balance. With a checking account, you can get a direct deposit from your job and make purchases digitally. You can also set up automatic payments for bills and automatic transfers from checking to savings.
- Get insured. There is a variety of insurance. Get health insurance, renter’s insurance, and car insurance. Standard insurance to have is life, health, renters, homeowners, and motor vehicle insurance. You can potentially get a better rate on life insurance at an earlier age. If you intend on starting a family in the future, life insurance can lay a foundation of financial protection for your family.
- Build an emergency fund. Insurance may not cover everything. Unforeseen events do occur. Having an emergency fund prepares for those times. Car repairs, unexpected trips, and family needs are all potential reasons to have funds put back in reserve.
- Start saving for retirement. It is never too early to start saving for retirement. The earlier you begin saving for retirement, the better. Familiarize yourself with your company’s 401k plan. If you cannot get retirement through your job, consider opening an Individual Retirement Account (IRA). Anyone earning income can open an IRA. Automatic transfers can be set up for monthly withdrawals from your checking account to your retirement account.
- Establish, monitor, and build your credit. It is important to establish credit. Take on some debt. Landlords and employers may look at your credit report. Getting a small credit card and being responsible for the payments can create a strong credit history. Try not to have a balance at the end of each month. Use your credit card as a tool for your benefit. On-time payments will reflect your financial responsibility on your credit report. Over time your credit limit will increase, which can be another emergency fund. Some credit cards offer incentives/points for using their card that can be used for discounts or trips. Be sure to seek out a credit card with a low interest rate. High-interest credit cards can do more harm than good if not properly managed.
- Pay your bills on time. It is not wise to miss payments. Be sure to record your payment dates and have the funds ready on time. Late fees add up and can be detrimental to a monthly budget. Every penny counts, and bill collectors want every cent on schedule. If, for some reason, you do not have the funds on time, reach out to the debt collector and see if you can extend/reschedule your payment.
- Learn about investing. Investing is a great way to earn passive income over time. It is a risk/reward method, but proper investments and predictions may allow for a more glamorous lifestyle. It helps build wealth over time.
- Be aware of student loans. Only borrow what you need, especially for education. Student loans can be a tempting trap that many young adults have never encountered. Student loans will often allow students to max out, getting loans well over the amount needed to cover their school expenses. Be cautious when borrowing. Borrow what you can afford to pay back. Borrowing money well over what you can afford is a recipe for disaster.
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Life is expensive. Food, housing, clothes, insurance, vehicles, travel, and fun all cost money. To afford to navigate your 20’s responsibly, it is wise to gain a grasp of financial literacy early. If you have family nearing their 20’s refer them to this article so that they can get a heads up on what they should do financially.