Being a twentysomething can be extremely tricky, especially when it comes to your finances. You’re just getting on your feet and exploring the wonders of being financially independent from your parents.
Sometimes it’s hard to know what you should be doing with your money. To help you navigate these shark infested waters, I’ve shared my top 5 financial tips for 20-somethings below.
1) Negotiate Everything
One of the most powerful things you can do to improve your financial situation is negotiating everything. You’ll want to make sure you negotiate your first job’s salary, every raise, promotion and new job after that. Your future wages are almost always tied to what you’ve earned previously, so negotiating a salary even just a few percent higher will have a huge effect as it compounds throughout your life.
Your salary isn’t the only thing you should be negotiating either. You should negotiate car prices, how much to pay for your rent or the price of home you’re looking to buy, your cable bill, your cell phone bill, large purchases such as furniture and anything else you can think of. It never hurts to ask—the worst someone can say is no. If you’re reasonable, there is a high likelihood you’ll get at least a little bit of what you want.
2) Invest For Retirement
Retirement is a long way away. Even if you think you’ll never retire, and you may be right, you need to be prepared for anything that could happen. Many people retire because they can no longer physically work. If this happens to you, you don’t want to be living on the streets! So, start investing today.
The great thing about starting to invest in your 20s is the fact that your money will have a long time to work for you. This means that every dollar you invest today will be worth much more when you turn 65 than a dollar that you invest at 30 or 40.
This power, called compounding returns, will allow you to have more options down the road when others are having to invest huge portions of their income to have even a small chance of being able to retire to a normal financial life. Start investing for retirement now. You won’t regret it.
3) Don’t Get Into Consumer Debt
It’s tempting to get into consumer debt when you’re in your twenties. You’ve either just graduated from college or are getting on your feet after leaving your parents’ house.
We tend to think we should live like our parents did, but what we fail to realize is that our parents aren’t in the 20s. They’ve probably been working for 20+ years to earn money and purchase everything they have.
Unfortunately, the only way for many 20 somethings to live like their parents is to buy things with consumer debt. Don’t do it. It isn’t worth it and you’ll be paying interest on things you couldn’t afford to buy in the first place.
Instead, set some money aside each paycheck to work toward buying things you want while living a financially responsible life. No one ever looks back and says, “I’m glad I got into tens of thousands of dollars of consumer debt when I was in my 20s” so don’t do it.
4) Don’t Rush Into Big Decisions
Big decisions, financial or not, can have a profound impact on your life. Things like getting married, buying your first house and moving across the country for a job are massive life changes. You shouldn’t rush into them. Why? If they don’t work out, they will cost you a ton of money you’ll never get back.
Life shouldn’t be solely about your finances, but you don’t want to rush into a huge mistake. Take some time to fully think through these decisions. Don’t just make them on a whim.
Others may be pressuring you to move through these big steps in your life, but if you aren’t ready, don’t give in to peer pressure. Wait until the time is right for you. Your wallet will thank you even if you avoid just one major financial mistake.
5) Start An Emergency Fund
Start an emergency fund today and try to fill it up in a reasonable amount of time. In general, an emergency fund should be as little as 3 months of expenses to as much as 12 months worth of expenses in cash.
This money will give you peace of mind no matter what road bumps come your way in your financial life. If you get laid off or have to quit an oppressive job, this money will keep you afloat. If you have a freak medical accident, this money can cover your deductibles and out of pocket expenses.
You shouldn’t be worrying about money when things like those I mentioned above happened, and if you have a stacked emergency fund, you won’t have to.
Following these five tips above will help you successfully navigate your twenties financially. Of course, there are many more things you can be doing to get your finances on the right track, but these tips will get you a good part of the way there.