One’s 20s is usually the decade when a person figures out his career path. Besides setting sail in the competitive job market, this introduces a person to the tough world of finances. While there’s nothing more exhilarating than receiving one’s first paycheck, which marks the start of their financial independence, this experience also shoves the reality of never-ending expenses onto their faces.
It is tempting to spend on self-indulgent things at the expense of neglected bills constantly knocking on your door. Still, indeed, the spending habits you develop in your 20s will hugely determine how well you will fare financially for the rest of your life. If your financial principles are easily swept by consumer fads and, occasionally, peer pressure, you are more likely to have money troubles ahead.
In this crucial second decade of your life, you want to make every effort count. Being past 25 years old does not mean it’s too late to change your spending habits if you take note of these pointers. Here are things you would rather spend on while in your 20s to achieve a level of financial independence that lasts for well until your twilight years:
A Budget that Works
Having a monthly budget rids you of the need to think where you should spend your income. Rather, it shifts your focus on which part of your life you could still save on costs. Simply put, if you have a fixed amount for, say, your living expenses, including food, rent, and utilities. You’re set to work around this fixed allocation only, you will save yourself lots of time thinking about what you would rather eat, where and how you would rather hang out, what time you should sleep, and many other decisions you make daily.
In a way, budgeting sets you up for a more disciplined lifestyle. For example, because you only have x dollars for food, you eat only a certain amount of food. One thing that is worth noting, though, is that you should not budget to the extent that you are depriving yourself of your basic needs.
Coming up with a good budget that you know you could commit to isn’t perfected overnight. Also, your lifestyle and, in turn, your choices as a consumer changes over time. You would have to revise your budget from time to time, but the habit of budgeting should remain constant.
A Comfortable Retirement
Let’s face it; your health will fail sooner or later, you will no longer be as fit to work. Also, due to government restrictions, you will have to retire at some point, so saving up for your retirement as early as possible is a wise decision. If you land your first job and your employer offers retirement fund options like 401(K), which redirects a portion of your paycheck to a long-term account, take advantage of this.
If you do not have a stable job, you can still save up for your retirement with a Roth IRA arrangement. Like a 401(K), you can arrange the transfer of an amount from your paycheck every month to your retirement fund with a Roth IRA. The later you prioritize your retirement, the higher the premiums you would have to pay for later to afford a comfortable self-sustaining retirement.
An Emergency Fund
Emergencies like health crises or accidents can be avoided, but not totally. In the unfortunate event that any of these emergencies hit you, the most convenient way to pay for the expenses you might incur is through an emergency fund rather than fumbling for where to borrow money when the need arises. You can also pay for unexpected breakdowns of your car or other personal gadgets from the same fund.
As a general rule of thumb, your emergency fund should amount to at least three months worth of your living expenses. This is what financial experts would advise when you plan to resign from your current job. You have enough to live off of before you land your next job.
It is just as wise to allot a portion of your emergency fund if you know how much insurance is for your house and car. As a preemptive measure, you could also invest in a life plan that usually covers expenses related to life-threatening illnesses or accidents.
What you financially sow in your 20s, you will eventually reap once you reach your retirement age. From this point of your life onward, it will be a series of choices between instant and delayed gratification. You can indulge with your hard-earned money from time to time, but don’t lose sight of your long-term financial goals.