If you haven’t started taking your financial habits seriously, you’ll be setting yourself up for a crash in the future. The decisions you make about your finances in your 20s go a long way to determine what your finances look like in the future. Hence, the need to know the financial skills to master in your 20s to build a healthy financial habit to secure your future.
You’ll be able to avoid unnecessary debts, improve on your saving habits to build wealth when you can learn to budget, save, and invest in your 20s.
The financial skills you need aren’t as difficult as you may be thinking. Here are the financial skills to master in your 20s.
1. Know how to budget
Have a basic record of how much you earn and how much you spend, and create a budget of how you want your money to be spent and what happens to every dollar you spend. Doing this also helps you to relax, knowing full well that your priorities are being covered in your budget.
There are unlimited budgeting apps that can help you manage your money effortlessly. Some even send warning messages to you when you are approaching your spending limit. Consider choosing the best app for your budgeting needs, and you can also follow these easy steps to make a personal budget.
2. Financial goals are a must for you
Assign specific dollar figures to your finances after estimating how much you need to achieve your overall goals. Do not just be broad with your financial goals. Narrowing them down and making them specific is more likely to produce the desired result.
It is important that you set long-term goals, short-term, and mid-term goals to attain your lifelong financial dreams. These plans will make you more conscious of your money and spend less unlike when there is no goal in view.
You can have a short-term goal of kick-starting an effective emergency fund and a long-term goal that is focused on saving for your retirement. Check out online savings calculators that can help you determine what your saving plans should look like to attain your financial goals within a specific time frame.
3. Plan for your financial future
Create a plan towards your financial future to lead you through foremost financial milestones from acquiring your own home to having your first car, paying for your kids’ college, and more.
This form of planning often requires that you carefully strategize your plans over your finances, and would help you prioritize your goals and to channel your income and time properly. You may want to involve a financial advisor with some extra assistance when planning things out. Their support can help in figuring out the possible repercussions of your major decisions on your finances.
4. Prepare your shopping list and plan before going out to buy
Before you go out shopping, prepare your list and plan, and ensure to adhere to the plan. This simple habit will help you save money you’d have spent over unnecessary or unplanned expenses, and it takes just a few minutes to create before you step out.
With a clear list in your hands, you’d be able to put a restrain on your spending habits especially if you also go with the cash you need for each trip. In addition, this can also help you avoid a situation where you forget something important, and could have cost you making a second trip to a grocery store.
Plan your shopping ahead before setting out to save a little more money that will eventually add up to a significant figure.
5. Get started with funding your retirement account
Saving for your retirement is very crucial to ensure your future is secured. Start contributing to a 401(k) or other retirement plans from your first job. Your contributions will be done with pre-tax dollars, while taxes on your earnings will be deferred until they are withdrawn during retirement.
More interesting is the fact that you’ll find a lot of employers who will match all or part of your contribution that will produce huge gains for you. An early contribution to your retirement account will help you build favorable compound interest. For instance, if you invest $2000 yearly as a 25-year-old for a period of 8 years, and stop investing thereafter, you’ll still get more money at 65 than someone who invested $2000 yearly at 35 for 32 years – even though the latter will have invested 4 times more!
If you are self-employed or your company has no provision for 401(k), there are other retirement accounts you can put into consideration. You can earmark 15% of your earnings to save for your retirement. Even if you find it difficult to meet up with that percentage, you can work around a convenient amount.
6. Have steady budget meetings with yourself often
Take out some time to evaluate your budget and find out if you’ve stayed true to your budget. This will help you know your position with attain your spending goals and taking control of your finances each month. Doing the reviews every day may seem much, but this schedule helps keep the check-ins brief since you’ll only have to review transactions for each day. As a married person, it is important to have a discussion with your partner as regards your spending habits, to keep you on track together. It would be easier to stick to your plans if both partners are monitoring the credit card often.
7. Learn to sidestep impulse shopping
Someone who is a deal hunter is not exactly the same as a smart shopper. Once you are able to perfect the art of finding a good deal, you need to turn to a smart shopper and think properly if you ever needed the item at all before purchasing it.
But this is not to say that you should not acquire things that you’ll love to have. It simply means that you should be able to distinguish between your needs and wants, and also be sure you do not have to dip into your savings to satisfy less important expenses. You may want to consider waiting for 24 hours before making a major purchase.
8. Keep a close eye on your credit report
While focusing on building the required skills, ensure to check your credit reports often and watch out for identity theft. You can request a free credit report from each credit bureau for each year. Consider giving space of four months apart to cover for a 12 months period. This would help you catch potential identity theft quickly and easily and also secure your credit score.
9. Balance each month’s account
You may be thinking of the work and time that will be required to balance your accounts, monthly. But doing this is very important to managing your money in your 20s. This will prevent a situation where you have to overdraw your account and get entrenched in unwanted overdraft fees or late fees. This will help you catch identity theft or find out if your account’s information has been leaked.
Placing a balance on your account isn’t difficult if you start by putting together your most recent bank statement, worksheet, and a calculator for the figures. Then, make a comparison of your transactions to the bank’s list and find out if there is any difference.
If you notice any imbalance in the record, communicate with your bank right away. They’ll need to work with you to uncover unauthorized transactions. But you may still have to bear a part or all of the losses – depending on the situation at hand.
10. Improve your skills in finding good deals
You’ll be amazed at how much you will be able to save on your regular purchases each month if you are able to find good deals. This may involve knowing the most suitable time of the year to buy items such as clothing, groceries, linens, kitchen wares, a car, and others.
You’ll be able to reduce the amount of cash that goes into purchasing everything in your house, and maybe your vacation too! Once you make a habit of finding good deals, you’ll put yourself in a more advantaged position in your life.
11. Find your balance
It is very crucial that you place a perfect balance between having the best of life, saving, and working. It is fine to give yourself a good treat so far you are also saving well enough for your comfort in future.
You may have a hard time with getting your balance at first, but to be financially successful, you need to develop the skills to help you manage your money in your 20s.