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The fact that you’re reading this post makes us think you have a bright financial future!
Most 20-somethings scrape by financially, but they don’t spend any time researching ways to manage their money to build a solid foundation for their futures. And here you are, making the effort to learn how to manage money in your 20s.
So we’re happy to help you on your journey! This post is all about how to manage money in your 20’s.
Make a Budget
I love budgets so much! My budget:
- reassures me that I have the money available to cover all my bills every month.
- shows me where I’m wasting money on crap I don’t need or care about.
- gives me permission to splurge on the things I love most (yay, travel!) guilt-free.
Budgeting may sound intimidating, but it’s really just a list of your monthly expenses. You compare your total expenses to your income to see how much wiggle room you have to work in fun things like dinners out, weekend trips, clothes, make-up, whatever.
Making a budget is all about prioritizing. How much of your income do you want to spend on
Make a Plan for Your Existing Debt
If you already have debt, don’t stress about it. Just make a plan to make it manageable.
You definitely want to pay down your credit card balances asap. Why? Because you’re probably spending a fortune in interest!
If you read our post Um…Excuse Me…But You’re Paying Your Bills Wrong, you know that my $5,286.01 balance was going to end up costing me $6,146.99 in interest alone if I just made the minimum payments. Oh, and it was scheduled to take me 23 years to pay it off.
You don’t want to do that! Instead, you want to tackle your debt using our Champagne Waterfall Strategy (aka, the Debt Snowball Method). Learn exactly how it works by reading our post all about the Champagne Waterfall.
Accept Smart Debt, Avoid Bad Debt
Many financial gurus (even one of my faves, Dave Ramsey) tell you to pay off all debt as soon as possible. And then avoid all debt going forward.
We disagree with that strategy. There are several totally legit reasons to remain in debt and take on new debt.
You just need to distinguish between smart debt and bad debt.
Smart Debt:
- is used to buy things that will grow in value (like real estate, for example, or for student loans which will increase the value of your future earning power). These are called “assets”.
- AND has a low interest rate. Home loans and student loans are both perfect examples of low interest rates. With great credit, you can currently get home loans and student loans with interest rates under 5%.
Bad Debt:
- is used to buy things that lose their value over time liabilities (clothes, electronics, entertainment…basically most things we put on credit cards…oh, and cars too!). These are called “liabilities”.
- OR has a high interest rate. Do you know your credit card rate? It could be over 20%!
It’s ok to take on smart debt to grow your wealth, but avoid bad debt if at all possible.
Build Your Savings Habit
If you ever want to be financially free, you need to build a habit of saving money. The earlier you start, the better off you’ll be! Check out The $831,751 Reason to Save for Retirement While You’re Young and Broke to see just how important it is to start this habit in your 20’s.
Start your saving habit by building your emergency savings. This will keep you from a financial face-plant when life throws you a curveball.
Then you get to move into the wonderful world of Retirement Savings (where you can build some serious wealth for a long, happy life). And, even more fun, your Dream Savings (where you get to save the money to make your dreams come true: move abroad, plan a killer wedding, whatever).
Save little and save often. Small amounts of every paycheck will add up fast!
Go from Saver to Investor
Once you have 1-3 months’ worth of expenses in your emergency savings, you get to move from saver to investor!
Keep your emergency savings in a plain ol’ checking account so you can access it whenever your emergency arises (cause life rarely gives you a warning!). But to make the most of your retirement and dream savings, you want to invest those savings in different investment accounts.
What kind of accounts? Well, it depends on your goals and your time frames. For a solid overview of the different ways to invest your savings, read this: The 3 Accounts Every Woman Needs to Grow Her Fortune.
Put Your Savings/Investments on Auto-Pilot
With your saving and investing plan in place, it’s time to put your plan on auto-pilot.
Putting your savings/investments on auto-pilot essentially fool-proofs your financial future. When you have money automatically transferred from your paycheck to your savings and investment accounts each payday, you remove the temptation to spend your money on other things. And you remove the risk of just plain forgetting to move your money to the right accounts.
Automation allows you to set and forget your finances. It’s basically the secret to guaranteed financial success!
Learn more: Fool-Proofing Your Savings for Guaranteed Financially Success
Build Your Income
One last tip to help you manage your money in your 20’s: focus on building your income. Sure, financial success depends more on how you use the money you have than on how much money you make. But making more money so you can save and invest more money will help you gain financial freedom even sooner.
So get earning!
Ask for a promotion at work. Add a side hustle to supplement your income. Or build a passive income stream so you can make money even in your sleep!
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