Top 4 Financial Tips Every Twenty-Something Should Know

Being in your twenties brings a lot of new opportunities and challenges, and one thing many twenty-somethings learn is that managing your finances can be a tricky thing to figure out and perfect. For many young adults, it may be their first time dealing with things like building credit, applying for loans, and trying to create a financially responsible budget that still allows them to have fun.

Courses like personal finance and economics are not required in all school systems across the country, so a lot of times young adults are left learning about finances firsthand or receiving financial guidance from their parents. Unfortunately, this leaves a gap where a quarter of Americans feel they don’t have anywhere to get trusted financial advice.

In your twenties, figuring out financial habits or tricks that work for you can help you set yourself up for financial success and security long term. Here are a few financial habits that we think every twenty-something should know.

Credit Matters

Credit is extremely important and a bad credit score, or no credit at all, can put you in a very bad financial situation. What is credit though and how do you build it?

Credit is essentially a reflection of how financially responsible you are, so a high credit score means banks and businesses will see you as more likely to pay a loan back or make your rent on time. Building a credit score can be as easy as opening a credit card, and paying it off each month. With a good credit score, which is typically considered 700 and above, you’ll be able to make larger purchases like buying a car or house. Good credit also allows you to be approved for larger loans and have greater chances of being approved for rentals.

A good credit score can help you in a lot of areas, but it is very easy to overspend on credit cards and end up in debt. In fact, in 2023 Americans aged 19-25 had an average credit card debt of $2,854. Realistically, your credit card should be paid off monthly to avoid interest rates and credit score drops. Be sure to check your credit statements each month to ensure you are making on-time payments in full, ensuring your credit score will not suffer.

Budgeting And Fun Can Coexist

Many twenty-somethings are earning their first real paychecks and it can be very easy to spend it too freely and be left struggling to make it to the next payday. By creating and following a budget you can make it from one paycheck to the next, and still be able to do fun activities or personal interests.

The 50-30-20 rule is one method that involves splitting your income into three different categories.

• 50: Fifty percent of your income should be going to necessities. So, if you make $3,000 monthly, $1500 should go towards things like rent, groceries, and monthly utilities.
• 30: Thirty percent of your income can be dedicated to wants. This could include going on a weekend trip, going out to dinner with friends, or any other “extra” activities you want. Using the same $3,000 monthly income would mean that you have $900 a month for entertainment and fun.
• 20: The last twenty percent of your income should be put away in savings. For $3,000 monthly, you would be saving $600 per month and $7,200 annually.

If the 50-30-20 rule doesn’t seem like the best option for you, there are also mobile apps like Goodbudget and YNAB that can craft a customized budget for you. Discovering which budgeting method works best for you and learning to budget and save young, will not only instill healthy financial habits but will help you achieve your long-term financial goals.

Start Saving Now, Get A Boat Later

Even though you may be sitting at your first job right now, it’s never too early to start thinking about retirement. Check to see if your employer offers a retirement plan, such as a 401(k), where you can set aside a certain amount of your paycheck to go toward it each month. Many employers will also match a certain amount of your contribution, for instance, if you deposit 5 percent of your paycheck into your 401(k) each month your employer might be willing to match 3 percent of that.

One reason to start saving for retirement now is that the faster you accumulate your retirement savings, the quicker it can grow. Many retirement plans are often interest-bearing, meaning that your investment into retirement will grow over time just by sitting in your account. Compound interest, commonly found with savings account options, enables you to gain interest on your initial savings as well as on the interest that has already accumulated. So for example, if your interest rate is 5% annually and you invest $1,000 now, in 10 years you would have $1628.89 and in 20 years you would have $2653.30. That would be an extra $1,653.30 for you, just for leaving your savings in an account with interest.

Although it can seem silly to be concerned about retirement when you’re in your twenties, there are plenty of benefits to starting sooner. Actively working towards savings for retirement now will set you up for a more financially responsible future.

Emergencies Can Happen, So Have a Plan

Your twenties are an exciting time and it can be hard to imagine something bad happening, which is probably why 31 percent of Gen Z doesn’t have any form of emergency fund. Emergencies can happen though, like a sudden layoff or a car accident, and you may need an easily accessible $1000 to fix it. By setting aside money into an emergency savings fund, you have some fallback options if an emergency were to happen, that don’t involve taking out a loan or maxing out a credit card.

Consider putting your savings money into a high-yield savings account, where your money can grow over time. Additionally, many savings accounts have limits on the number of withdrawals that can be made each month, which helps limit the temptation to spend your savings on non-emergency things. Even if you start saving just $50 a month, having emergency savings allows you to be more flexible in your finances and prepared for unexpected expenses.

Saving, planning, and budgeting are all very boring and daunting words when it comes to finances in your twenties, but incorporating these tips into your daily financial habits now will set you up for a more financially responsible future. Start thinking about your financial habits now, so your future self will be better prepared financially.

For more financial tips and marketing strategies, check out our other articles here.