There’s no denying your twenties are a wild time! You’re just learning how to make your way in the world on your own and trying to have fun doing it.
Being fiscally responsible can be daunting when your income is still minimal, and your bills seem to be insurmountable. However, there are steps you can take to paint a bright financial future for yourself now.
- Take Out Loans Responsibly
We will all likely need to take out a loan at some point, whether it is for a mortgage, a car, or anything in between. Taking out loans is not necessarily a bad thing, but accumulating excessive amounts of debt is.
Make sure that you only take out loans when you need to and that you try to get the best interest rate possible. If you don’t feel comfortable navigating the world of personal finance, then you may want to enlist the help of a company that specializes in custom financial solutions.
- Open a Roth IRA
When you’re in your twenties, retirement seems like it is eons away. However, it is essential to start saving for it as soon as possible. Investing when you’re young is the best way to get the most bang for your buck.
Don’t underestimate the power of compound interest. This is when you earn interest on interest over many years, and it is much more profitable the longer it can accumulate. The sooner you start, the more money you will make!
A great retirement investment option for young people to help them start earning compound interest is the Roth Individual Retirement Account (IRA). Roth IRAs differ from traditional IRAs in that the money is deposited into the account after taxes are taken out, but taxes are not taken when the money is removed for use in retirement.
Conversely, traditional IRAs are not taxed initially, which helps wealthy individuals enter a lower tax bracket. Instead the money is taxed once it is extracted later. Generally, younger individuals don’t need to worry about income tax breaks because they do not make enough, so the tax savings later in life will be much more beneficial.
- Live within Your Means
Once you get that initial paycheck from your first real job, you might feel like royalty, but you shouldn’t get too spending happy. Spending less than you make and ensuring that you are always saving will put you in a much better financial situation for the future.
Try avoiding living paycheck to paycheck as much as possible because unexpected things happen. It is recommended that adults always have savings equivalent to six months’ worth of pay in case of emergency or unexpected layoff.
The world is unpredictable, so you need to be as prepared as possible. This does not mean that you can never treat yourself. It just means that maybe you should think twice about whether you really need that Ferrari right now.
- Build Credit
Credit is important for trying to make any big purchases in your life. Like loans, credit cards are not bad at all if they are used responsibly. If you do not currently have a credit card, start by getting one and just using it for gas or something small. Make sure that you pay it off in its entirety each month, so you do not accumulate debt and interest.
It is best to build credit sooner rather than later because your credit score is partially determined by how long you have been accumulating credit. Eventually, you may want to get a few credit cards because the amount of accounts you have open affects your score.
Being on your own in the real world can be daunting, but there is no need to panic. Start with the tips above to set yourself up for future financial success. Happy budgeting!