Managing money can be challenging, especially right after college. Many twenty-somethings land in the real world without the knowledge of how to manage their budget, let alone manage their credit card bills and loan payments. According to a report from the American Psychological Association, three-quarters of young people state that money is a significant source of stress.
Your twenties are all about setting yourself up to be independent, learning how to pay the bills and manage your cash flow, but at the same time they are about learning how to make money. But all of this is not possible without the right level of financial education, so here are some tips you need to have in mind so that you do not end up broke down the line.
Save, Save, Save
Most people ignore tomorrow because they are thinking about today, and sometimes saving money comes as an afterthought. You need to have emergency savings that can cover at least four months of your expenses, which includes rent, groceries, car payments and utility bills. You can keep that money in a saving or a checking account, so that you have the possibility of withdrawing it if there is a need for that. Start saving as soon as you can, because if you start to contribute to your retirement account in your twenties rather than thirties you will be richer by the time you retire.
Be Careful With Spending
It is very easy to swipe your credit card and not pay attention to where that money has come from. Instead, you need to take a look at how much you are spending, and what you are spending it on. Do this every month, try to re-evaluate and start saving. You can use some apps that will help you put your finances in writing and also send you alerts if you make purchases that are bigger than usual.
Use the 401k
A recent survey has shown that young people have very unrealistic goals when they are asked about their retirement; 70 percent think that they will spend less than $36.000 per year in their old age, and 15 percent even believe that the lottery is a good retirement strategy, yes we are serious. You need to more than you think for your retirement, especially now when pensions are becoming extinct, and Social Security payments are smaller.
When you are setting up a 401k, it would be wise to invest in a fund for your retirement, because you need to make sure you will be taken care of financially in the future. If your employer offers a 401k program, contribute to it to meet the match threshold.
Start Building Your Credit
If you do not own a credit card, you should get one so that you can boost your credit history. Because if you do not have a good credit history, it can come back to haunt you when you try to apply for a mortgage or a car loan, both of which require a decent credit score. For example, if you change your Netflix subscription to your credit card each month, pay it off in full and on time, you will be adding valuable information to your credit score. You need to make sure that your credit card has the balance payed off in full at the end of every month.
Make the Most of Your Taxes
Taxes are complicated, even when you get older, but if you start handling your deductions now, you will make it easier for yourself later. If your employer offers you a Health Savings account, sign up for it, because this account will enable you to contribute pre-tax dollars, meaning that your salary will be considered to be lower income at tax time, and that will save you money. Remember that you are also eligible for tax deductions if you are still in school, own a home, are paying off your student loans or fall below a certain income threshold.
These were our personal finance tips that every twenty-something needs to have in mind from the very start of their adult life in order to live a better life in the future. Start thinking about them now, because it is never too early to ensure a financially stable future.