Your 20s is a decade of self-discovery and goal-setting. As you move out of your parents’ home and begin your professional career, you gain more financial responsibilities. But these shouldn’t stop you from setting money goals for yourself.
As you work on your financial independence, consider the long-term goals you want to achieve in your 30s and 40s. It’s never too early to start working on them. Although it will present some challenges, the payoff is worth it.
Set up an emergency fund.
An emergency fund is separate from your savings account. The latter is for you to use on future expenses, such as buying a house or enrolling in graduate school. An emergency fund account, however, is for you to use on unexpected financial problems, such as if you get laid off.
Before setting up this account, consider your monthly living expenses. These include food, rent, utilities, transportation costs, and even loan payments. Once you’ve computed the total amount of these expenses, multiply it by three to six months. The final tally is your goal amount for your emergency fund.
Pay off your debts.
One of the biggest challenges to achieving financial stability is debt. Short-term debt, in particular, can easily create setbacks in reaching your goals. If you have the means to do so, consider paying off all your debts by the end of the year. The exceptions to this are long-term debts, such as a mortgage or car loan.
As you work towards this goal, learn how to check your credit score. Determining your credit score allows you to evaluate your ability to pay off your debts. Additionally, try to avoid paying with credit. This keeps you from acquiring new debt and lets you save on interest fees.
Start a retirement plan.
It might seem unusual to start planning for retirement in your 20s, but it’s to make sure you are comfortable during your golden years. Your retirement plan should be completely separate from your savings account. This is to protect the former from any unexpected expenses that aren’t covered by your emergency fund.
Before you open a retirement plan, determine how much you can allot for it. These payments are often made monthly. Make sure you have enough money for your daily living expenses and incidentals before setting aside the amount for your retirement plan.
Increase your income.
Your savings account is essential in helping you create financial stability and independence. But it shouldn’t be your only fallback plan. There will come a time when your expenses will exceed your income. Rather than emptying your savings to keep up, you can work on increasing your income.
Aside from your job, you have options to increase your income. With the digital landscape, several young adults have started their own businesses. If you think that there is a service or product you can provide, consider making a business out of it. Use your 20s wisely by working towards long-term financial goals that will give you a comfortable life.