There’s no age where we have to have it all figured out — financially, professionally, or in any other aspect of our lives. But there are certain habits and efforts that if we start now, can pay off in the long run. Figuring out some financial fundamentals in our 20s tees us up for lifelong financial success as we progress into some of our highest earning years in our 30s and beyond.
1. Give Every Single Dollar a Job
By the time we hit our 30s, we should have a personalized financial routine that fits with our lifestyle and goals. Reframing the narrative around budgeting to “giving every dollar a job” can help get over the resistance to tackling some financial goals. This means looking at your gross salary and understanding every. single. thing. that comes out of your paycheck. Are you withholding enough taxes? Are you maximizing your health and lifestyle benefits from your company? What other pre-tax savings or programs could you be taking advantage of?
What’s left — AKA your actual paycheck — gets allocated in a few different directions. Automate whenever possible, make a decision only a couple times of year to tweak your savings rates, then see if your paycheck can be split to different accounts. Set up your bill pay for absolutely everything. A little bit of effort goes a long way to having a full financial ecosystem established that is personalized and works for you.
2. Bulk Up a Savings
We can’t say it enough, but your emergency savings is really the very first place to start building out your pre-30s financial plan. Aim for three months of expenses. Consider six or more if you have major life changes on the horizon like leaving your full-time gig or heading back to school.
Where exactly you save your money will depend on your total financial picture. You might want to consider a higher-yield savings account if you can handle minimal transactions. If you’re set on an emergency fund already, consider a few different types of savings products like a Money Market for really specific needs like long-term cash stashing for a house or other major purchase.
3. Get Your Retirement Game in Order
When is the best time to start saving for retirement? Right. This. Minute. In our 20’s, retirement seems really far off. There can be so many other expenses to start taking on early in our careers it can be challenging to talk ourselves into prioritizing something 40 plus years from now.
You are taking major control of your finances if you start today, however small, putting away retirement money. First off, most employers will offer some sort of a match to whatever you put in yourself, so you’re leaving free money on the table if you don’t take advantage of that benefit. Second, the time value of money is powerful. We’re talking real dollars powerful. If you start saving for retirement at 45, putting away about $500 per month and earning around 7% a year, compounding annually you’d have around $245,000 if you retired at 65. Start that same plan at 25 and you’d have well over $1,000,000. Let’s go check those contribution numbers, shall we?
4. Plan to Take Down Student Debt
It’s almost inevitable for most of us that we’ll end up with student loans to finance part of our education. Regardless of if we’re still pursuing advanced degrees, pre-30 is a perfect time to lay out the life plan for how you’ll manage and chip away at that student loan debt.
Student loans usually have pretty competitive interest rates, but that shouldn’t keep us from hustling to pay them down. Where you can, make extra payments and take advantage of how that can positively impact the overall balance you’ll owe in your lifetime. You may also want to consider refinancing student loans, but be careful of going from a publicly supported federal loan program to private funding. The latter can mean you forfeit some tax and other public benefits if you ever work for the federal government so be sure that a lower rate doesn’t offset these opportunities.
5. Splurge on Something Important
As we move toward our 30s, we may have the privilege of having a little more financial flexibility. This is a great stage of life to start moving toward investments outside of a financial institution. A non-financial investment can mean a million different things. Maybe it’s important that you take that once-in-a-lifetime trip with friends before you take on a new career chapter or create a family. You might decide it’s a good time to pour some money into a professional certification or graduate degree that will pay dividends down the road for your earning potential.
An important-to-you investment could even be a gorgeous piece of jewelry to celebrate an accomplishment or mark a life milestone. Whatever it is, it’s nice to start accumulating lasting experiences, memories, or life needs during this stage of our money management.
6. Get a Handle on Your Credit Score
Your credit score affects every aspect of your financial life – from loan rates to cost of insurance. The better your score, the more money you save. Going without checking your credit score, or checking it every few years, isn’t enough. To have control over your credit and your financial life, you must check your credit score regularly.
In school, you could neglect your homework for weeks, then cram for a test and ace it. Credit scores don’t work that way. If you have an application coming up, you can’t get your credit score ready over a few days. Instead, it takes months, years even to build up a good credit history. Monitoring your credit score puts you in control of your credit and makes you more accountable for keeping your credit score at it’s best. >> Get your daily refreshed credit score and more on the Mobile Banking App.
7. Set Up All Your Insurance Needs
The right insurance policies are key to a healthy financial life. One of the best things you can do to get the best coverage for your needs is to educate yourself: Get multiple quotes, read your policy closely before signing on, and don’t hesitate to ask questions when you don’t understand.
If you’ve had a policy for sometime, make it a date to review your plans at the very least annually. Are you still getting the best deal? Do you need to add coverage? Keep in mind that insurance policies are largely personal. Everyone’s situation and needs are different, and as your life changes (say, you get a new job or have a baby) so should your coverage. As a member of the credit union, you are eligible for discounts through TruStage or schedule a free consultation to see if our local representatives can be saving you money.
8. Give It Away
Few things make us feel more like adulting than sharing resources with causes we care about. We don’t have to wait until we’re major moguls to give back to those in less fortunate situations or to advance social issues that we’re passionate about. Just being a member of a local credit union means you’re feeding into a system that helps your community thrive.
New research also demonstrates that spending money on others provides a bigger happiness boost than spending money on yourself. When prosocial spending is done right–when it feels like a choice, when it connects us with others, and when it makes a clear impact–even small gifts can increase happiness, potentially spurring a domino effect of generosity. And it doesn’t stop at just making you feel happier, investing in others can make individuals feel healthier and wealthier too!
