Just for the record, your 20s is not a throw away decade. Although it is expected that you will make mistakes when it comes to your finances, it is not expected that you will habitually make money mistakes all willy-nilly for a full 10 years.
Before you turn the big 3-0, make sure you’re able to check the following off your financial bucket list:
Create an emergency fund. Your emergency fund should be at least six months of your total expenses and be kept liquid and safe from fluctuation in a savings account or money market. This financial cushion gives you peace of mind in the event of a layoff, a car repair, or an injury.
Ditch all of your friends who are attempting to keep up with the Kardashians. They will keep you broke way into your 30s.The Social Mirror Theory states that people are not capable of anchoring their self-concept and self-perception without taking into account others’ viewpoints. Even though this theory speaks to general social interactions, we KNOW the theory is applicable to how we spend money. If your friends are spending like it is en vogue throughout their 20s, then you are more likely to pull out your wallet once you crossover into being a big girl in your 30s.
Pay down your debt systematically. Use your 20s to create healthy financial habits when it comes to paying off debt. The two most popular strategies for tackling debt are the “high-interest” approach and the “smallest-balance” approach. With the former, you pay bills with the highest interest rate first. The rationale behind this strategy is to get the most financially draining bill out of the way first. With the latter, you pay your bills with the smallest balance first, relieving yourself of its psychological impact. There is an immediate sense of accomplishment and progress when one bill is completely accounted for.
One method is no better than the other and as you get older, your preferences may change. So stay open to using both approaches.
Start saving for retirement. There is a saying, “Old fools were once young fools.” There is no better way to use your youth to your advantage than to start stashing away some funds for your post-work years because compound interest is on your side. Speak to your human resources professional, accountant or financial advisor for some guidance on your options and to help you calculate how much you will need to retire.
Manage your credit. You will not be living the young, broke and fabulous life forever. There will definitely come a time when you will want to buy a home, a car or start a business. For each of these, you will need to leverage your credit score to apply for loans. So, while you are in your 20s, get into the habit of paying your bills on time, refraining from overextending your credit, and opening unnecessary accounts.
Splurge on a meaningful experience. Money is just not only meant to be saved; it is also meant to be enjoyed. Make sure you identify something that you love to do, then do it without guilt. The memories that you create will be well worth the money spent.