Your twenties can be the most eventful decade of your life. You may be a student, new to a full-time job, a new renter or homeowner, married or single, a parent or even a small business owner. No matter what you're experiencing, you're likely rather new to managing your money. While no financial advice is the same for every situation, there are several common strategies that people in their 20s may want to embrace.
Live within your means. The financial decisions you make now can have a significant impact on your future financial stability. Getting organized and paying attention to how you spend your money is a great place to start. Establish a budget by determining how much money you'll need to meet your fixed expenses, setting an amount to deposit into a savings program for short- and long-term needs, and designating the rest for discretionary costs. If you're earning a regular paycheck, consider setting up an auto-transfer option to make saving easy and begin to contribute to your employer-sponsored retirement plan if your company offers one. Review your spending habits regularly and see what the trends are. You might be surprised at how much you're spending on dining out, daily coffees or other non-essential expenses.
Get smart about finances. Make time in your schedule to learn more about various investment options and strategies that are available. It's also smart to stay current - understanding the markets and economic climate can help you make well-informed financial decisions. Also be sure to read the fine print when you're signing documents for a loan or a big purchase like a car or a home. Don't hesitate to consult those who've done it all before. Seek advice from your parents, older siblings, friends - or better yet, a financial advisor who can provide more objective advice.
Pay down debt. If you've used loans to pay for significant expenses - such as school, a vehicle or a home - be sure you know what you owe and set up a system to pay down your debt. Consider creating a document where you can track your debt, record your payments and easily track your progress. Not only is it inspiring to see the "owe" column getting smaller, this will also help you protect your credit and ensure you won't forget anything. Before you make any additional purchases on credit, make sure the payments will be manageable.
Get a jump start on retirement savings. As a 20-something, time is on your side, and so is the power of compounding interest. Let's say you set aside $5,000 when you're 20 years old. By the time you're 65 that money could grow to nearly $160,000 if you assume an average 8% annual return. Retirement may seem far away when you're in your twenties, but the more you can save when you're young, the better off you'll be when you want to retire.
Protect yourself. Whether you own a home or are renting, make sure you have the proper insurance policies in place. Health insurance is also a must, even if you are healthy. If you are unemployed and are not eligible to be insured under your parents' or a spouse's policy, a health savings account (HSA) - which carries low premiums but still provides catastrophic coverage - could be an option.
Plan for milestones and emergencies. When it comes to prioritizing your savings, think in terms of life cycle and major milestones. Set specific financial goals for each significant event - marriage, having children, buying a home and retirement. Also keep in mind that the more possessions you acquire and the larger your family grows the more financial responsibility you assume. In addition to saving for your goals, establish a crisis fund that could cover three to six months of expenses if you face a financial emergency.
Your twenties are exciting. It's a time of many firsts and you're likely still finding your way and establishing yourself. Along the way, don't forget to set financial goals, and recognize when you need help. Even if you haven't accumulated much to invest, a financial advisor can evaluate your current finances and help you ensure your plans for the future are on the way to becoming realities.
Scott Serfass, CFP®, CRPC®, CDFA, ChFC®, CLU® is a Financial Advisor with Ameriprise Financial Services, Inc. in Charlotte, NC. His team specializes in fee-based financial planning and asset management strategies. To contact him, visit http://www.ameripriseadvisors.com/scott.d.serfass
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