Things I Wish I Knew About Money in My 20's
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Hey there, fellow money wanderers! Ah, the 20's—a decade filled with newfound freedom, excitement, and a healthy dose of confusion. Looking back, it's clear that some of the biggest lessons I learned about money came with a few bumps and bruises. If I could go back and give my younger self a financial pep talk, it would probably save a lot of stress and sleepless nights. So, here are the things I wish I knew about money in my 20's, shared with you so you can (hopefully) avoid the same mistakes and start on a path to financial wellness.
- Emergency Fund: Before anything else, build an emergency fund. Aim for 3-6 months' worth of living expenses. This is your financial safety net.
- Retirement Savings: If your job offers a 401(k) with a match, take full advantage of it. It's free money! If not, consider opening an IRA.
Pro Tip: Start small if you have to. Even $20 a week adds up. The key is to get into the habit of saving.
- Track Your Spending: Use apps like Mint or YNAB (You Need A Budget) to keep tabs on where your money is going. You'll be surprised how those small purchases add up!
- Plan for Fun: Yes, budgeting means allocating money for bills and savings, but it should also include fun stuff—eating out, traveling, hobbies. This balance keeps you from feeling deprived.
Pro Tip: Have a “guilt-free” spending category. This is money you can spend on whatever you want without overthinking it.
- Build Credit Early: Good credit can save you a lot of money on loans and insurance. Start with a secured credit card if you're new to credit.
- Pay Off Your Balance: Try to pay off your balance in full every month. Interest rates on credit cards are no joke, and carrying a balance can quickly spiral out of control.
Pro Tip: Keep your credit utilization below 30% of your limit. This helps maintain a good credit score.
- Take Courses and Workshops: Whether it’s related to your career or a passion project, expanding your knowledge can open new doors.
- Network: Building a strong professional network can lead to new opportunities. Attend industry events, join LinkedIn groups, and don’t be afraid to reach out to people you admire.
Pro Tip: Consider investing in a mentor or career coach. They can provide guidance and help you navigate the early stages of your career.
- Be Mindful of Spending Increases: It's okay to enjoy some upgrades, but do so thoughtfully. Ask yourself if the expense genuinely adds value to your life.
- Increase Savings with Income: As your income grows, increase your savings rate. This helps build wealth and gives you more financial security.
Pro Tip: Automate your savings and investments. Set up automatic transfers to your savings account or investment account each payday.
- Health Insurance: Even if you're healthy, accidents happen. Make sure you're covered to avoid hefty medical bills.
- Life and Disability Insurance: If you have dependents or significant debt, consider getting life insurance. Disability insurance is also important—it protects your income if you're unable to work.
Pro Tip: Shop around and compare policies. Look for insurance that fits your needs and budget.
- Start Simple: If you’re new to investing, start with low-cost index funds or ETFs. They offer diversification and typically have lower fees than actively managed funds.
- Consistent Contributions: Regularly invest a portion of your income. Dollar-cost averaging helps mitigate market volatility.
Pro Tip: Don’t try to time the market. Focus on long-term growth and let your investments compound over time.
- Good Debt vs. Bad Debt: Good debt includes things like student loans (if they help you earn more) and mortgages. Bad debt includes high-interest credit card debt and personal loans for non-essential items.
- Pay Down High-Interest Debt: Focus on paying off high-interest debt as quickly as possible. It’s a guaranteed return on investment.
Pro Tip: Consider using the avalanche method (paying off the highest interest rate debt first) or the snowball method (paying off the smallest balance first) to tackle your debt.
- Save in Advance: Set up a separate savings account for big purchases. Contribute to it regularly so you're prepared when the time comes.
- Avoid Impulse Buys: For big purchases, give yourself a cooling-off period. This helps you make thoughtful decisions and avoid buyer's remorse.
Pro Tip: Research and compare options for big purchases to get the best deal. It’s worth taking the time to ensure you’re making the right choice.
10. Seek Financial Advice When Needed
Don’t be afraid to seek help from a financial advisor, especially if your financial situation becomes more complex.
- Find the Right Advisor: Look for a fee-only advisor who acts as a fiduciary, meaning they're required to act in your best interest.
- Be Involved: Even with an advisor, stay involved in your financial planning. It’s your money, and understanding what's happening with it is crucial.
Pro Tip: Many financial advisors offer a free initial consultation. Use this opportunity to see if they’re a good fit for you.
Looking back, I realize that my 20's were a time of financial exploration and, yes, a few missteps. But each lesson learned has been invaluable in shaping a more secure and confident financial future. If you’re in your 20's, take these tips to heart. Start building good habits now, and your future self will thank you! Got any financial lessons you’ve learned? Share them in the comments below! Let’s keep the conversation going and help each other navigate this wild journey called adulthood. 🌟
1. Start Saving Early—Even if It’s Just a Little
In your 20's, retirement feels like a lifetime away. But, trust me, the earlier you start saving, the easier it becomes. Compounding is a magical thing—it’s like free money growth!- Emergency Fund: Before anything else, build an emergency fund. Aim for 3-6 months' worth of living expenses. This is your financial safety net.
- Retirement Savings: If your job offers a 401(k) with a match, take full advantage of it. It's free money! If not, consider opening an IRA.
Pro Tip: Start small if you have to. Even $20 a week adds up. The key is to get into the habit of saving.
2. Budgeting Is Your Friend, Not Your Enemy
I used to think budgeting was about restricting myself, but it’s actually the opposite. It gives you the freedom to spend on things you love without guilt.- Track Your Spending: Use apps like Mint or YNAB (You Need A Budget) to keep tabs on where your money is going. You'll be surprised how those small purchases add up!
- Plan for Fun: Yes, budgeting means allocating money for bills and savings, but it should also include fun stuff—eating out, traveling, hobbies. This balance keeps you from feeling deprived.
Pro Tip: Have a “guilt-free” spending category. This is money you can spend on whatever you want without overthinking it.
3. Understand Credit and Use It Wisely
Credit cards can be a great financial tool if used correctly, but they can also be a pitfall if you're not careful.- Build Credit Early: Good credit can save you a lot of money on loans and insurance. Start with a secured credit card if you're new to credit.
- Pay Off Your Balance: Try to pay off your balance in full every month. Interest rates on credit cards are no joke, and carrying a balance can quickly spiral out of control.
Pro Tip: Keep your credit utilization below 30% of your limit. This helps maintain a good credit score.
4. Invest in Yourself and Your Skills
Your 20's are the perfect time to invest in your skills and education. This can pay off in higher earnings and career opportunities down the line.- Take Courses and Workshops: Whether it’s related to your career or a passion project, expanding your knowledge can open new doors.
- Network: Building a strong professional network can lead to new opportunities. Attend industry events, join LinkedIn groups, and don’t be afraid to reach out to people you admire.
Pro Tip: Consider investing in a mentor or career coach. They can provide guidance and help you navigate the early stages of your career.
5. Avoid Lifestyle Inflation
As you start earning more, it’s tempting to upgrade your lifestyle—nicer apartment, better car, more vacations. But this can lead to lifestyle inflation, where your expenses grow with your income, leaving you still living paycheck to paycheck.- Be Mindful of Spending Increases: It's okay to enjoy some upgrades, but do so thoughtfully. Ask yourself if the expense genuinely adds value to your life.
- Increase Savings with Income: As your income grows, increase your savings rate. This helps build wealth and gives you more financial security.
Pro Tip: Automate your savings and investments. Set up automatic transfers to your savings account or investment account each payday.
6. Insurance Isn’t Just for the Old and Sick
Insurance can feel like an unnecessary expense when you’re young and healthy, but it’s a crucial part of a solid financial foundation.- Health Insurance: Even if you're healthy, accidents happen. Make sure you're covered to avoid hefty medical bills.
- Life and Disability Insurance: If you have dependents or significant debt, consider getting life insurance. Disability insurance is also important—it protects your income if you're unable to work.
Pro Tip: Shop around and compare policies. Look for insurance that fits your needs and budget.
7. Learn the Basics of Investing
Investing can seem intimidating, but it’s one of the best ways to grow your wealth over time.- Start Simple: If you’re new to investing, start with low-cost index funds or ETFs. They offer diversification and typically have lower fees than actively managed funds.
- Consistent Contributions: Regularly invest a portion of your income. Dollar-cost averaging helps mitigate market volatility.
Pro Tip: Don’t try to time the market. Focus on long-term growth and let your investments compound over time.
8. Debt Is a Tool, Use It Wisely
Debt isn’t inherently bad, but it should be managed wisely. Not all debt is created equal.- Good Debt vs. Bad Debt: Good debt includes things like student loans (if they help you earn more) and mortgages. Bad debt includes high-interest credit card debt and personal loans for non-essential items.
- Pay Down High-Interest Debt: Focus on paying off high-interest debt as quickly as possible. It’s a guaranteed return on investment.
Pro Tip: Consider using the avalanche method (paying off the highest interest rate debt first) or the snowball method (paying off the smallest balance first) to tackle your debt.
9. Plan for Big Expenses
Whether it's buying a house, a car, or taking a big trip, planning for major expenses can prevent financial stress.- Save in Advance: Set up a separate savings account for big purchases. Contribute to it regularly so you're prepared when the time comes.
- Avoid Impulse Buys: For big purchases, give yourself a cooling-off period. This helps you make thoughtful decisions and avoid buyer's remorse.
Pro Tip: Research and compare options for big purchases to get the best deal. It’s worth taking the time to ensure you’re making the right choice.
10. Seek Financial Advice When Needed
Don’t be afraid to seek help from a financial advisor, especially if your financial situation becomes more complex.
- Find the Right Advisor: Look for a fee-only advisor who acts as a fiduciary, meaning they're required to act in your best interest.
- Be Involved: Even with an advisor, stay involved in your financial planning. It’s your money, and understanding what's happening with it is crucial.
Pro Tip: Many financial advisors offer a free initial consultation. Use this opportunity to see if they’re a good fit for you.
Looking back, I realize that my 20's were a time of financial exploration and, yes, a few missteps. But each lesson learned has been invaluable in shaping a more secure and confident financial future. If you’re in your 20's, take these tips to heart. Start building good habits now, and your future self will thank you! Got any financial lessons you’ve learned? Share them in the comments below! Let’s keep the conversation going and help each other navigate this wild journey called adulthood. 🌟