5 Tips to Get a Strong Financial Start in Your 20s

So you’ve graduated from your dream school and have a crisp diploma to show for all your hard work. Congratulations! Your job starts next week, and your parents are both excited (and sad) for you to leave home. You’re ready to take on the world. But you’re a bit worried, too. You have to “adult” now.

How are you ever going to make it? The reality now is likely that you’re young, broke, and in debt. But five or ten years down the road, this can be just a dot in the past. The good news is that you absolutely can survive — and thrive! — in these early years starting out on your own. The bad news is, it will be hard at times.

To help you get started on your journey, here are five tips to help you get a strong financial start in your 20s:

Start Budgeting
Creating and balancing a budget is the best way to watch where your money is going. It also helps you stop running out of money before your next paycheck. So don’t balk at the idea of a budget; it’s not hard at all.

Here’s a quick run-through on how to create your budget:
1: Write down your income. This includes money from your jobs and side gigs.
2: Write down your overall debt. Include credit card debt, car payments, and student loans.
3: Write down your monthly expenses. For costs like auto or life insurance, divide the annual amount by 12 to come up with how much you’ll need to set aside each month.
4: Subtract the non-negotiable items (rent, food, transportation, utilities).
5: Subtract minimum payments on each of your debts.
6. With what’s left over: First, make payments against your debts (highly advised!) and second, build a fund for important, but not urgent, expenses you’ll certainly encounter, like a new winter coat or a new phone.

At first, you might not have enough to fully fund all your categories. That’s when the sacrifices and juggling come in. Your hair-care budget might have to drop from $50 to $25; eating out might need to be eliminated. Cut out whatever nonessentials you carry to in order to help balance your budget.

It will take some time to get used to budgeting. But stick with it, revising budget categories as necessary, and before long you’ll probably feel like you got a pay raise. Use any extra money to pay down your debts as fast as possible.

Pay Yourself First
One day you’ll want to retire, and the best time to start saving is today. Make it a goal to save at least 15% of your income in a retirement account, like a 401(k) or a Roth IRA. Contribute one or two percent this month, then double it next month. Take baby steps to work your way up to the full 15% of your income. Then continue doing that for the rest of your career. As your income goes up, so does the amount you save. Invest in high-performing index funds for the next 40 years, and you could be a millionaire by the time you retire.

Live Frugally
Renting a small apartment is usually the cheapest and easiest route for most 20-somethings. Find a two or three-bedroom apartment and sublet the rooms to others to cut costs. Or, alternatively, find someone else who’s already doing this and move into their place.

For those who can’t wait to be a homeowner, consider house hacking. Buy a cheap, multi-unit home that needs some TLC, rent out a dumpster for tearing out the old, outdated carpet, refinish the floors, and update the paint scheme. Then fill up the extra rooms with well-vetted tenants whose rent pays your mortgage. If you do this with a few properties over the next few years, you could end up with a nice rental portfolio by the time you head into your 30s.

Build or Improve Your Credit
By now, you know your credit score plays a role in your ability to get an auto and home loan. It also determines the interest rate on your credit card balance. But did you know your insurance premiums and potential ability to rent (and sometimes even your hiring status) also depend on this three-digit number? It’s true. It has been found that there’s a correlation between a high score and one’s ability to be a responsible driver or tenant.

So follow these five tips to begin building and improving your credit:

1: Establish and maintain a long, strong credit history.Open a credit card now, use it wisely, and pay it off each month.
2: Pay your bills early or on time. Not only do late payments incur fees, but also, each one registers as a ding against your credit score.
3: Pay the minimum
4: Monthly payment if you can’t pay the whole amount.
5: Don’t max out your card. Your credit score is partially based on your debt-to-income ratio. Having too much debt compared against your income level isn’t good for your credit score.
6: Check your credit report regularly. There could be mistakes on your report, so request free credit reports from the three credit reporters each year. Take the necessary action to get any incorrect items removed.

Learn New Skills
Your education shouldn’t end the day you leave college. Learning a new skill can help you earn more in the workplace, get promoted, or take advantage of extra opportunities that others don’t get. Learning a foreign language could net you a high-paying expat assignment, and obtaining a hard-to-pass certification can lead to being promoted when the competition is strong. Here are some skills that might help you climb the career ladder:
1: Project management
2: Foreign language
3: CPR training or health- and safety-related courses
4: Computer coding
5: Leadership development
6: Certifications relevant to your industry

You probably know at least a few people who are five to ten years past college and still struggling to keep up with bills. Taking action on the above steps is the best way to ensure that this doesn’t happen to you. There are plenty of aspects of life that you can’t control — but usually way more that you can control. You owe it to your future self to get your financial life on the right track now, so the going will be easier later on.

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