The decisions you make in your early twenties create a ripple effect that can influence your future success. Does that sound like a lot of responsibility for one so young? Of course, it does. But you can’t get to where you want to be without the proper guidance and a hefty dose of luck.
Getting an early start can improve your chances of economic comfort. So here are five tips for setting yourself up for financial success in your twenties.
1. Save for Emergencies
An absolute must-have is an emergency fund in case of unemployment or an unexpected expense like an extensive car repair. You should have this in a liquid savings account you can access. Please don’t rely on your retirement account — you’ll incur a tax penalty if you have to take an early withdrawal.
How much should you save for a rainy day? While many financial planners recommend three to six months of living expenses, it all depends on your unique circumstances.
For example, if you earn minimum wage or close to it, it might not take you long to find another comparable job if you lose yours tomorrow. However, you could also spend your entire savings on one blown water pump. So you might want to put away more if you can.
2. Find Your Calling
We all spend a significant portion of our lives at work. So if you hope to succeed, you’ll have a much better chance if you feel passionate about what you do each day.
Unfortunately, you do need to earn money. One option you have is to start a side hustle doing what you love without quitting your day job. Eventually, you may make enough money to do what you love full-time. Even if you don’t, you’ll have a secondary income to fall back on if unexpected events — like a pandemic — interrupt your usual cash flow.
3. Cover Yourself
Even if you attended a top college, you probably didn’t get a lesson in insurance. However, obtaining the right coverage is crucial. You can find yourself in quite a pickle if you’re an independent contractor who relies on your computer for work, and someone steals it from your apartment when you have no renter’s coverage.
What’s more, medical debt remains the leading cause of bankruptcies in the U.S. — and that’s if you can afford to file for financial relief. So please obtain health insurance coverage, even if you don’t think you’ll ever need it. No matter how tough you think you are, accidents and illnesses can strike anyone at any age.
If you have kids, make sure to cover yourself with life insurance. Speak with your financial advisor about what plan would work best for you. For example, whole policies build a cash value you can borrow against to fund things like your child’s college education.
4. Purchase a Home If You Can
Unfortunately, rents keep rising faster than inflation and have outpaced wage growth for decades. So even if you work as hard as you can, you might fall behind year after year.
Buying a home is one of the best financial investments you can make. It will lead you to success. It might take you some time to save enough for a downpayment, but the sacrifice is well worth it.
5. Pay Down Debt Quickly
Debt can crush you. You might use credit cards, so you can purchase the latest fad fitness gadget, thinking you’ll pay the money back when you earn more. The problem is, interest adds up and multiplies what you owe, eating up any future salary increases before you get a bit of joy out of them. Then, you feel deprived, use your charge cards for a splurge, and you’re back to square one before you know it.
Instead, start paying down debts like student loans in your twenties instead of accruing revolving credit. It may mean going without now, but your future self will thank you.
The choices you make while young will help set up your future, especially when it comes to money. Ensure you’re doing everything you can to find financial success in your twenties with a few simple tips!