Your 20s can be exhilarating, exhausting, exciting, and expensive. BUT! This decade can also serve as the prime time to set “future you” up for success. Here’s how:
1. Take Advantage of Free Money
These days, most employers offer their employees a retirement plan that they can invest in. The majority of employers offer a 401(k), but those of you who work in the non-profit, education, or health sectors may find that you’re offered a 403(b). Others still may have a Simple IRA or other plan set up with their employers. Regardless of what plan you have available to you, it is critical that you take advantage of any employer match options.
What does this mean? It literally means FREE MONEY is available for the taking. Many employers will match up to a certain percentage of what you contribute to the account.
For example, if you make $50,000 a year and have chosen to contribute 5% of your annual salary to your 401(k) plan, your company can also match that (depending on what their contribution limits are). In this example, if your employer were to offer up to a 6% match, that means they would be able to match your same contribution as long as it is 6% or less of your salary. Therefore, if you decide to contribute 5% of your salary each year ($2,500), your employer would also do the same thing. That’s another $2,500 you would not otherwise have invested. See…free money!
If you are not sure what plan is available to you, I encourage you to reach out to your employer to find out. Better yet, do some research and find out if they do match your contributions. Provided they do, it is incredibly smart to take advantage of this policy and earn as much free money as you can.
2. Build Credit: Never miss a payment
If you are relatively new to the working world, you may find that your credit score could use a nice boost. After all, if you are just starting out, your credit has not been fully established. The easiest way to boost your credit? Make your payments on time.
Life happens and it can become really tricky to balance all of your commitments. We get it. That said, missing a credit card or other monthly payment can really impact your credit. In order to ensure that you never miss a payment, consider setting up automatic payments from your checking account for your utilities, phone bills, gym membership, and other routine bills. Another useful tip? Ask Siri to remind you to pay your bills each month. Set up calendar reminders on your work calendar to keep your bills top of mind.
3. Manage Debt
Most of us have debt: student loans, home equity loans, personal lines of credit….you name it, our generation has it. Debt is not necessarily a bad thing, and can often times, provide you with a means to afford an opportunity that you would not have otherwise been able to achieve. For example, how many of us would have been able to attend college had it not been for student loans? Without these helpful tools, so many of us would find ourselves with very limited options. That said, managing debt is incredibly important. To start, ensure that you are making all of your required minimum monthly payments on time. Then, if you have the ability to contribute more than the minimum monthly payment, start doing so with the loans that offer the highest interest rates. Minimizing the amount of interest collected over time is a smart way to free up your capital for other investments later on.
4. Follow the 80/20 rule
A general rule of thumb is that 80% of your monthly income should cover your expenses (and then some), while at least 20% of your income should be allocated towards savings. If saving 20% of your monthly income is not feasible for you at this point, start smaller. Perhaps saving 5% is more realistic. You can always increase your amount of savings in future months when your circumstances allow. However, if you are able to prioritize saving 15-20% of your income (for retirement plans, emergency savings, investments, long-term savings, etc.) your future self will definitely thank you.
5. Protect Yourself
The concept of insurance may seem like something you could not possibly need when you are young, but unfortunately, that’s not the case. Health insurance, renter’s insurance, car insurance …all of these things come with fees attached, but are absolutely worth your while. Protecting yourself is so important – in the case of an emergency, you don’t want to be unable to seek medical attention (or hit with a huge debilitating medical bill!). Additionally, if you find yourself an unfortunate victim of some clever thief (it happens), the losses will be far more palatable if you have renter’s insurance to lean on.
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