Here’s the Formula to Avoid Becoming a Financial Failure in Your 20's
One strategy: Use Credit Cards (the more the better)
Your 20s can be a decade of financial opportunity or financial struggle.
Good financial habits established in your 20s can set the foundation for a secure financial future, while financial missteps can lead to long-term consequences.
In this article, I’ll cover the top 10 ways to avoid being a financial failure in your 20s.
Create a budget and stick to it
Budgeting might not sound like the most exciting thing in the world, but it’s a crucial step in avoiding financial failure.
A budget helps you track your income and expenses and make sure you’re saving enough, paying your bills on time, and not overspending. To create a budget, start by listing all of your fixed expenses (like rent and car payments) and variable expenses (like groceries and entertainment). Subtract your expenses from your income to see if you have a surplus or deficit.
If you have a deficit, you’ll need to find ways to cut back on your spending or increase your income.
Once you have a budget in place, stick to it as closely as possible.
Save money
It’s never too early to start saving for the future.
In your 20s, you should aim to save at least 15% of your income, whether it’s for a down payment on a house, an emergency fund, or retirement. If you’re not sure where to start, consider setting up automatic transfers from your checking to your savings account to make saving easier.
You can also take advantage of employer matching programs for retirement savings and consider opening a high-yield savings account to earn more on your money.
Pay off debt
High levels of debt can be a major burden and make it difficult to achieve your financial goals.
If you have student loans or credit card debt, make a plan to pay them off as soon as possible. Consider consolidating your loans to get a lower interest rate or look into repayment plans that are based on your income.
If you’re carrying a balance on your credit cards, try to pay more than the minimum due each month to reduce the amount of interest you’ll pay.
Invest in your future
Investing can be intimidating, especially if you’re just starting out, but it’s an important way to grow your wealth over time.
If you’re not sure where to begin, consider starting with a low-cost index fund or signing up for a robot advisor that will do the investing for you.
As you learn more about investing, you can start to diversify your portfolio and consider adding individual stocks or other investment vehicles.
Avoid financial scams and pitfalls
Financial scams and pitfalls can be costly and time-consuming to recover from.
Be cautious of any offers that seem too good to be true and do your research before giving out personal or financial information. Be wary of unsolicited phone calls, emails, or mail claiming you’ve won a prize or are entitled to a loan.
If you’re not sure if something is legitimate, don’t be afraid to ask for a second opinion from a trusted friend or financial professional.
Learn about personal finance
The more you know about personal finance, the better equipped you’ll be to make informed financial decisions.
Take some time to learn about topics like budgeting, saving, investing, and debt management. You can find plenty of resources online, including articles, podcasts, and books, or consider taking a personal finance course.
Seek professional financial advice
Sometimes, it can be helpful to get advice from a financial professional, especially if you’re not sure how to handle a specific financial situation.
A financial advisor can help you create a plan for saving, investing, and paying off debt and can provide guidance on financial products like insurance and retirement plans.
Look for a financial advisor who is a certified financial planner (CFP) and is registered with the Securities and Exchange Commission (SEC).
Don’t make impulsive financial decisions
It’s natural to want to keep up with your friends or to splurge on a big purchase, but impulsive financial decisions can lead to regrets and financial problems down the road.
Before making a big financial decision, take some time to think it over and consider the long-term consequences.
If you’re not sure if you can afford something, ask yourself if you’d be willing to give up something else to pay for it.
Build good financial habits early on
The habits you establish in your 20s can have a big impact on your financial future.
By building good financial habits early on, like saving, budgeting, and investing, you’ll be setting yourself up for success in the long run.
It’s never too late to start building good financial habits, but the earlier you start, the more time you’ll have to benefit from them.
Keep an eye on your credit score
Your credit score is a measure of your creditworthiness and can affect your ability to get a loan, credit card, or even a job.
In your 20s, it’s important to establish a good credit score by paying your bills on time, keeping your credit card balances low, and not applying for too much credit at once.
You can check your credit score for free through sites like Credit Karma or by requesting a copy of your credit report from the three major credit bureaus (Experian, Equifax, and TransUnion).
In conclusion
Your 20s can be a crucial time for establishing good financial habits and avoiding financial failure.
By budgeting, saving, paying off debt, investing in your future, and building good financial habits, you’ll be well on your way to financial success.
Don’t be afraid to seek professional advice or to learn more about personal finance to help you achieve your financial goals.
