6 Money Essentials If You're in Your 20's
Make Eliminating Debt a Top Priority
Your 20's is an expensive stage of life. There will be many big ticket items that will be barreling in at one time. Student loans kick in, you may be looking to buy your first apartment or home (and furnish it!), perhaps there’s a wedding on the horizon, and maybe even children. There’s a lot to pay for in what seems to be a short amount of time. Even though you feel young (and you are!), it's time to start putting together a financial plan.
The best place to start is to decide that you are going to eliminate as much debt as possible. Remember, getting out of debt now will set you up for a more secure future. It's always a good idea to start today in anticipation for tomorrow.
Your financial plan doesn't need to be overly complicated and should take the shape of a simple, straight forward plan of attack. To set yourself up for optimal success, be sure to include these six essentials in your plan:
1. Eliminate debt. The best thing that you can do for yourself in your 20's is to put together a viable “get out of debt” action plan. Make a list of all your debts from smallest to largest. This includes any and all credit card and college debt. Attack the small ones first, this way you will see the progress. Then assault them one by one, until they’re gone.
2. Understand how your career impacts your investing. Look at your career as you would a stock or a bond.
One path could be highly risky with high rewards. The other path could be safer, more predictable, and more stable. This should affect how you approach your investments. Make your investment risk the opposite of your career risk. Big earning, hit or miss type careers like commercial real estate warrant very conservative investments.
Middle school teachers or nurses should look at their job and paycheck as safe and steady, increasing the amount of risk they can take in their investment portfolio.
3. Be sure that you are saving for your emergency fund. As you’re paying down your debt, you’ll also want to be sure that you’re saving for your emergency fund. The goal is to have 6 to 12 months of money to cover all of life’s expenses in the event of a catastrophic event like a job loss. An emergency fund is critical so that you don’t have to dip into other savings or withdraw funds from your 401(k). Plus, your emergency fund will help you sleep better at night.
4. Start investing for your future. It’s never too early to start investing and saving. Once you have your savings for your emergency fund on autopilot, then you can start contributing to your 401(k). Even if you can’t make a large contribution, remember the value of compounding and that your money will grow over time. Begin with contributions to your 401(k) up to the amount that your company will match if possible. Remember, this is free money to you, so take advantage of it! Next look at investing in a Roth or traditional IRA. Additionally, there are a number of new online automated financial advisory services on the scene now that offer low fees.
It might be just the right time to check one out.
5. Remember the 4 keys of investing: diversify, allocate assets, and keep fees and taxes low. An efficient way to do this is through Exchange Traded Funds (ETFs). ETFs are an investment vehicle that can accomplish all four of these goals.
6. Be sure that you have the right insurance. Insurance includes healthcare, life insurance, and disability insurance. These are all essentials to take care of right now, in your 20's. If you aren’t covered by your employer, speak with an advisor to help you navigate through insurance's murky waters.
Remember: The more savings you have today, and the more sacrifices you make today to have cash reserves, the more you will be able to capitalize on opportunities in the future.