Many young adults face a challenge in understanding how to handle money, apply for credit, and avoid getting into debt. They need more guidance on these important financial matters to make smarter choices for their future. Keeping this necessity in mind, in this blog, we will discuss some of the best financial advice for a young person in his 20s.
Learn to be patient and in control of your money. Save up for what you need so you can use cash or a debit card and avoid using credit cards. Credit cards are like loans—they charge interest unless you pay the full balance every month. It’s good to use credit cards for emergencies, as they can help build a good credit score. But it’s important to be careful and not use them for unnecessary things to avoid getting into debt.
Take control of your money’s future by reading basic books on personal finance. Once you know what you need, stay focused. Don’t let a partner or friends push you into spending more than you should. Before getting help from professionals like financial planners or mortgage lenders, do some research to make sure they’re reliable. These steps keep you in charge of your finances, protecting you from influences that could lead you off track.
Once you’ve read a few books on handling money, remember two important things: don’t spend more than you make, and keep an eye on where your money goes. The best way to do this is by making a budget, a plan for how you’ll spend and save your money.
Looking at your expenses, even small ones like your morning coffee can make you aware of where your money is going. Making small changes in your daily spending can really help your finances. Also, keeping your regular monthly costs, like rent, as low as possible can save you money over time and help you own a home sooner.
In handling your money, a common saying is, “pay yourself first.” It means setting aside some money for emergencies and your future. This practice not only keeps you financially secure but also helps you sleep better. Even if you have a tight budget, it’s important to put some money into an emergency fund every month.
Once you make saving a habit, you’ll see it as a necessary part of your monthly expenses, not just an option. Certain accounts, like high-yield savings accounts, short-term certificates of deposit (CDs), or money market accounts, use compound interest to boost your savings over time.
Start thinking about your retirement, even if you’re young. Save money early, especially in your 20s. With compound interest, your savings grow not just on what you put in but also on the interest it earns. This helps you have enough for retirement later.
Try company retirement plans, and they’re a good idea. You put in money before taxes, and some companies also add extra money to your savings. It’s like getting free money. 401(k)s let you put in more money than individual retirement accounts (IRAs), but both help you get closer to having good financial health.
When a company tells you how much they’ll pay you, check if it’s enough for what you need and want to save. You can use online calculators like PaycheckCity.com to figure out how much money you actually get after taxes. They show your total earnings (that’s everything you get) and what you take home after taxes. For example, in 2022, if you earned $35,000 a year in New York after taxes, you’d have about $28,270 left, which is around $2,356 per month. It’s like your paycheck story in simple numbers.
If you don’t have health insurance, get it now. If you have a job, your boss might offer health insurance. There are plans with lower monthly costs called high-deductible health plans. They can also let you have a Health Savings Account (HSA). If you’re under 26, you can stay on your parent’s health insurance. This has been a rule since 2010, when the Affordable Care Act (ACA) started.
If you’re renting, think about getting renter’s insurance to protect your stuff from things like theft or fire. Make sure to read the policy carefully to know what it covers. Disability insurance is important, too. It helps you keep getting money if you can’t work for a long time because of sickness or injury.
If handling money feels tricky, find a fee-only financial planner. They give advice without earning money from specific investments, so they’re focused on what’s best for you. It’s like having someone on your side, looking out for your interests.
