The average 20-year-old is being forced to make many more financial decisions than ever before. If one were to actually take note of many current trends, they would see that the biggest financial mistakes are usually made in the earliest part of a person’s career. Indeed, the impact of any financial decisions that you make as a 20-year-old will really only start to be seen in your 40s, 50s and 60s.
Frankly, it’s absolutely vital that you began to plan for the future now, especially in these difficult and trying financial times. With that in mind, the tips below will help you to start putting together a plan for your future that, once you make it there, will allow you to be much more flexible in all of your other life decisions.
- Learn to use a budget. The reason to use this powerful financial tool can easily be seen in the spending habits of most young adults. Most start out every month on a high note, spending rather frivolously and wantonly. As the month winds down however, and they see that they’ve overspent, they go into financial panic mode. Using a simple budget is the single best tool to avoid this problem, start saving money and protect your financial well-being and your future.
- Know the difference between something that you need and something that you want. Simply put, a need is something that you must have and a want is something that you would like to have but, if you didn’t, it wouldn’t affect you one way or the other. Paying your monthly electric bill, for example, is a need but purchasing a new and expensive mobile phone is definitely a want. As a young person what you should do, ideally, is make sure that you’re not spending a disproportionate amount of your money on your wants as, if you are, it will be much more difficult to invest, save and put away money for retirement.
- Purchase insurance and start building an emergency fund. The average person will face three emergencies in their lifetime, from major health problems to the unforeseen loss of the job. Purchasing and having enough insurance to get you through these emergencies as well as having an emergency fund should your income temporarily stopped are both vital to your financial well-being and could well save you from bankruptcy or other financial problems.
- Start saving now. The average twenty something has absolutely nothing in savings. While that might not be a huge problem in the present, the fact is that the earlier a person starts saving the more money they will have put aside at the end of their career and, even better, the more money that their money will have earned due to compound interest. The more money that you save the better, especially in your 20s, as this can reduce the amount of money that you need to borrow when purchasing a home or starting a new business.
- 5. Prepare for your biggest vacation; retirement. While most people certainly don’t think of retirement as a vacation, the fact is that it’s very similar. You won’t be working and earning money but you’ll certainly be spending just as much as always, it’s for that reason that starting a retirement fund as early as possible and stuffing as much of your hard earned money into that fund as you can during your working life is extremely vital and could mean the difference between retiring comfortably and eating Ramen noodles on a regular basis. (Or much worse.)
- 6. Know and plan for taxes. One mistake that many young people make when they make investments or buy large ticket items is the tax burden that they will face at years end. It’s for this reason that having a tax plan in place will reduce your financial burden the following year and should allow you to avoid some taxes while at the same time increasing the amount of money that you can put into savings and your retirement accounts. Indeed, tax planning should never be looked at as an isolated event but rather as an integral part of your overall financial plan.
Let’s be honest; financial planning is not exactly chic or sexy. Most twenty something adults would rather have a great time, spend as much money as they can and not worry about tomorrow. (Hey, we wish we could do that too.) The fact is however that a person’s life can pass them by quite quickly and, for that reason, the people who start saving and investing the earliest are usually the ones that retire in higher style. If you have questions about how to save for retirement or anything else about your personal finances, please let us know and we’ll get back to you ASAP.