Managing Money in your 20s

Managing money is an important skill to have. There are a good number of people who don’t realize that it is better to start saving early when it comes to retirement and other major financial decisions. Here are a few things you or someone in their 20s should know when it comes to financial independence.

Track Your Spending

Tracking your spend goes a bit deeper than just making sure you aren’t spending too much on iced coffees. You should keep tabs on a few key aspects when it comes to your gross net income. There are a few things most people spend or will eventually need to spend money on, including:

• Food
• Housing
• Utilities
• Transportation
• Healthcare
• Taxes
• Clothing

While these don’t apply to everyone, most people eventually will be responsible for paying for all of the above. Aside from managing a reasonable budget, you must always know the difference between what you need to spend and what you want to spend. For example, if you find you spend a good amount on going out to eat at restaurants, it may be time to cut back. This might mean saying no to social engagements and opting to buy food to cook at home instead.

Save As Much As Possible

Saving might seem difficult but it is necessary for when it comes to funding emergencies and, in some cases, entertainment. Some of the most common events and occurrences people in their 20s save for are:

• Emergencies: One in four Americans have no emergency fund
• Saving for a Home: People in the US are buying their first home at an average age of 33
• Retirement Fund: The average amount of retirement savings for those in their 20s is $16,000
• Getting Married: The average cost of a wedding in the US is about $30,000

Build Credit & Avoid Credit Card Debt

The earlier you start building credit, the better. Your length of credit makes up 15% of your credit score. This credit score plays a major role in being approved for things such as your mortgage, car loan, car insurance, and raising the limit on your credit card. Collecting a substantial amount of debt on a credit card can come at you fast because it’s so easy to just say, “I’ll pay for it later”. Here are some of the best ways to avoid debt and prevent having your credit score lowered:

• Never Miss a Payment – Not only are you charged with late fees and interest, but it lowers your credit score. 35% of your credit score is made up of your payment history and one missed payment can last up to 7 years on your credit history. If you’re really in a money crisis, at least pay the minimum amount which doesn’t have as substantial an impact as completely missing a payment. However, don’t make paying just the minimum a habit because it will eventually raise your interest rate and affect your credit score.
• Have a Low Utilization Rate – For those still unsure about credit cards, a good way to build credit is to put your small monthly bills on it such as Netflix or Spotify. This creates a consistent utilization which could eventually raise your credit score and doesn’t create a debt that you can’t afford or have not accounted for.
• Only Have One Card – Having one card limits the amount of money you can borrow which can curb your bad spending habits. The more cards you have, the more likely you are to max one card and move to the next one when you can’t pay the previous off and need money. This leads to a debt snowball effect.

Invest In Retirement

Saving for retirement in your 20s is one of the best things you can do. Many people who are ready for retirement wish they had started saving earlier. You may not have a mortgage or family expenses in your 20s, but you should take care of your expendable income now to best ensure a relaxing future. Even with looming student debt, it’s okay to put some money into your future as well by doing this:

• Sign Up for Your Employer’s 401(k) – After you choose the amount you want to contribute, your employer takes it out every time you’re paid so that you don’t have to worry about forgetting to do it. You receive two tax breaks for contributing to your 401(k) that includes lowering your taxable income. Over 70% of employers offer a form of matching contribution to encourage people to join. This ensures that you save even more and receive free money.
• Build an Emergency Fund – Having an easily accessible fund for emergencies such as personal health or car trouble can prevent you from dipping into your retirement fund. You’re bound to have emergencies before the age of your retirement, so putting money aside for emergencies can help ensure that you’re on the right path to a financially comfortable future.
• Build Good Credit – Going back to the previous tip, building good credit now helps lower your interest rates, which in terms creates more money for you to save for your future.

Choose Housing Wisely

The average person spends about a third of their income on their housing. Wouldn’t you want to lower your cost as much as possible? Here are some housing tips when you’re trying to save money:

• Find Some Roommates – One-bedroom apartments usually start off at around $1,000. For someone right out of college, this may be tough to meet every month. Splitting the cost of a place with some other people can help you save tremendously. Although you may not have the place to yourself, you’ll have more money to spend on yourself.
• Live With Your Parents and Save – This can be a great way to save money. If they allow you, live with them and after a couple of months you can easily save up to thousands. You lived there for 18 years, what’s a little more time going to hurt?
• Neighborhood – As much as you may want to be right in the heart of the city where the action is, living a little outside could do some good for your wallet. You can still find less expensive neighborhoods without disregarding safety and proximity to city life. 

Looking for a new place to call home for your financial needs? Contact us at Wallis Bank for your personal banking and business banking needs.