Smart Money Moves to Make in Your 20s

If you are in yours 20s (lucky you!), you have an amazing opportunity to build a solid financial foundation that will serve you well for the rest of your life. You also have a huge opportunity to reverse any bad habits or correct any mistakes you have made to date. Now you may know that you need to start thinking about money, but just don’t know where to start. Below is a general guide and some helpful tips to get you started.

1. Create a budget: This does not have to be a huge exercise, but you should know how much you are bringing in each month and what your monthly expenses are, even at a high level. You can also use the 50/30/20 rule to help you put together an outline. 50% goes toward your needs (bills, food, rent, transportation, etc.), 30% goes towards wants (entertainment, travel, shopping, etc.) and 20% goes towards the future (saving, investing, and paying down debt). Every few months, review your spend and see if you are tracking towards your goals.
2. Start a retirement account: Retirement seems so far away, but starting a retirement account in your 20s will be a huge benefit to you. You will get to see the phenomenon of compound interest. Compound interest means you will earn interest on the interest you earn, and it will have a exponential affect. The easiest to start is a 401(k) likely through your employer, and it take money right out of your paycheck. However you can also start a Roth or Traditional IRA.
3. Pay off high-interest debt: In my opinion, Americans carry way too much debt. While saving and investing is very important, it is also important to go ahead and pay off any debt you have that carries high interest rates. You are likely okay paying the minimum on debt that carries lower interest rates, say somewhere around 5%. But if your interest rate is double digits, I would recommend to pay that portion of debt down prior to saving for retirement.
4. Understand how to use credit cards: Using credit cards will help you build a strong credit score and will save you thousands of dollars in your lifetime. But you should also learn how to pay off your credit card each and every month. The single most important thing about using a credit card is making sure that you always pay it off in full.
5. Create an emergency fund: No matter how safe you are, you are likely going to need an emergency fund at some point in your life. Saving up somewhere between three and six months’ worth of your monthly expenses is a very smart way to prepare for a financial emergency. This could included unexpected medical costs, car repairs, or a lost job. It is also probably a good idea to keep this emergency fund in cash.
6. Get disability insurance: You may now want to think about this, but you should protect yourself in the event you get disabled in the future. If somethings happens to keep you from working, disability insurance will replace at least part of your income. I would first talk to your employer as you can often purchase disability insurance through your employer. If your employer does not provide that as an option, you can always purchase a policy on your own.
7. Start investing: Investing money into different groups of assets will diversify your risk and will help you make a return on your money. Investing now can get you more than investing tomorrow. See my article on the Investing Basics: How to invest your money for additional tips.

These tips are a great way to start, but there are many more. Feel free to post in the comments section if you have any questions or additional tips to share!