When a person is in their 20s, they have their entire life ahead of them and it is time to think carefully about money. Suze Orman states that financial freedom is our birthright and it is important to realize that money impacts many things in our lives from our career choices to our marriages.
It is very important to avoid impulse decisions. Young people in their 20s must think things out and make 5 five year, 10 year and 20 year plans.
As you outline your financial plan to succeed in your 20s, reflect on these points:
Live frugally for as long as it is possible. The former Kansas City Chiefs football coach Herman Edwards spoke to the rookies of the National Football League this year and gave some sage advice on how to invest their salaries without blowing it on cars, watches and homes. Young adults starting out in any profession could use this counsel. As a person in my 20s as well, I can relate to the tendency to misjudge how far a paycheck will go and overspend on studios, clothes, dining out and going on dates among other things. A financially savvy technique that I would strongly recommend would be to continue to live like a broke college student well into your 20s as well. This will definitely put you at an advantage in comparison with your peers and you will be able to get ahead further by contributing towards retirement and a trust fund for your kids if you decide to have them.
Please do obtain health insurance. You have to realize that in America your one unfortunate accident or illness away from what could become a financial catastrophe if you are not covered. I would suggest you to get an individual policy if your employer cannot provide insurance. Picking a high deductible will ensure that the monthly premium is low and at the same time give you protection from those high medical bills.
Put as much money as you can into your retirement funds. Sign up for a 401(k) or other retirement plan if your employers offers it and shovel as much money as you can into it. If your employer doesn’t offer this, put money away into a traditional or Roth IRA. The target should be to put away somewhere from ten to fifteen percent of your total earnings. Contributing every dime you can at this time will provide you with some to room to adjust when you get older. Early retirement could be an option or you could reduce contributions to take on other expenditures like future children’s college educations without upsetting your plans for retirement entirely.
You should be taking chances at this stage of your life. When you are young you have time on your hands, so you have many years to ride out the ups and downs of the stock market. You should strongly consider putting eighty percent or more of your retirement funds into stocks and mutual funds to get full yield of their growth potential.
Taking chances does not always mean the stock market. You could also explore different possibilities in your career or borrow money to go to graduate school to set yourself up for higher earnings in the future.
Have a premeditated approach when dealing with debt. On one hand, it is important to pay off those credit cards and decide not to carry balances since the interest that is being paid on them feels almost like throwing money away. But on the other hand, it may not be smart to hurry and get rid off student loan debt or mortgages, which are likely to be somewhat economical and tax-deductible. A better idea would be to fund your retirement accounts to the maximum and have your other financial bases covered prior to rushing money to clear those debts.
Know and shape your credit score. These are the three-digit numbers lenders and others look at to assist in estimating your creditworthiness. Poor credit scores mean higher interest rates and insurance premiums along with less accessibility to loans. Furthermore, it can reap further havoc by making you lose out on apartments and jobs. So please remember to pay your bills in a timely manner, have low credit card balances and maintain a cautious approach when applying for credit as good scores are vital to your financial life.