Your 20s are a formative decade filled with significant life events like graduating, landing your first job, moving out, getting hitched, purchasing a home, starting a family, etc. It can be overwhelming that so many people are now financially independent as of this decade.
You have said that now is also the time to get severe and manage your money before life becomes increasingly busier. So, here are five important financial decisions every 20-something should make, including creating an emergency fund, establishing credit, and making stock market investments.
Establish An Emergency Fund
Although we all hope we never need one, having an emergency fund can give you financial security and peace of mind if you lose your job. Building an emergency fund initially takes time, but a slow, steady progression is preferable to none.
Generally speaking, experts advise saving at least three months’ worth of essential living expenditures. This sum changes as you become older. Consider your situation when saving money; a single 21-year-old living with roommates will likely need less than a 29-year-old with a young family.
Putting your emergency fund in a high-yield savings account is one approach to speed up the growth of your emergency fund. These savings accounts provide interest rates that are higher than usual (currently over 4% APY), which will enable you to save more money more quickly. Although it might not seem like much initially, remember that your interest earnings will increase as your balance does.
The CIT Bank Savings Connect account, which pays 4.60% APY on all balances, is one of our favorite high-yield savings accounts. Just be aware that a $100 minimum deposit is required to start the account, but there are no ongoing maintenance costs to be concerned about.
Save For Unforeseen Minor Expenses
Instead of an emergency, a rainy day fund is for unforeseen, lower-cost costs like auto, laptop, and home maintenance. It is entirely up to you how much money you set aside, but take prior spending into account.
By saving money for those inevitable bad days, you can avoid additional worry and rest easy knowing you’ve got yourself covered when a cost arises. Additionally, rather than using your emergency fund, you can use this one if you incur an unforeseen expense.
If you want your rainy day fund to increase, keep it in a high-yield savings account, much like your emergency fund.
Donate To Your Future
Put your money to work and begin investing in creating long-term prosperity.
Many possibilities exist, but a 401(k) and a Roth IRA are wise places to start, remarkably if your employer matches contributions. Both investing accounts come with tax benefits that can help you save as much as possible for retirement. But remember that each version has different restrictions, so do your homework before investing.
If you’ve exhausted your 401(k) and Roth IRA contributions, consider investing in a traditional taxable brokerage account. You can open an account with any brokerage of your choice. Still, if you prefer to choose your investments or have robo-advisor special funds, the Axos Self-Directed Trading account may be an intelligent choice.
Start small, gradually increase your payments, and allow compound interest to work magic. The earlier you start investing, the more time your money has to grow. You’ll thank yourself later, I promise.
Improve Your Credit
High credit can make it easier for you to be approved for loans with better terms, cards with reduced APRs, and even apartments. It’s critical to develop sound credit practices at a young age. Making all payments on schedule and in full is one way to demonstrate that you are a responsible borrower.
Although using credit cards carelessly might lead to overspending, remember that rewards credit cards are only worthwhile when used responsibly. Credit cards can otherwise result in high debt levels.
As you begin to establish credit, take into account the following:
Apply for a credit card: If your credit history is weak or nonexistent, secured credit cards may be a brilliant place to start.
Obtain authorization to use: To be added as an authorized user, request a family member with excellent credit to do so.
Register with a credit reporting agency: By reporting on-time bill payments for things like your mobile phone, power, and subscription services, Experian Boost enables those with no credit to start building credit.
There are plenty of excellent introductory credit cards available. You should choose one that allows you to utilize it to gain cash back or travel rewards on regular purchases. Using your credit card responsibly and paying it off each month can help reduce your everyday costs.
Here are a handful of our top starter credit cards for young people in their 20s with little credit history. Even if you already have a credit history, remember that there is no assurance that you will be accepted for one of these credit cards.
A mortgage or a higher-end travel rewards credit card may be easier to get after you’ve built up your credit. In light of this, it’s often in your best advantage to start developing recognition as soon as possible. Just be sure you make timely and complete credit card payments.