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Most of us never get a class in personal finance, so our approach to managing money after graduation is largely trial and error. But your 20s are an important time to lay the foundation for future financial stability.
Fortunately, you can learn the basics of personal finance from leading financial experts and bloggers. From tips on budgeting to paying off student loans to saving for retirement, here are eight personal finance tips from the pros to get started.
8 expert personal finance tips
To get started, check out these eight personal finance tips for 20-somethings from certified financial planners and the writers behind leading personal finance blogs.
Pay off your debt ASAPBuild a 3- to 6-month emergency fundCreate a budget and stick to itAvoid the trap of retail therapyStart saving for retirementDon’t be afraid to negotiate your salaryStart a side hustleSpend less than you make1. Pay off your debt ASAP
Even though you’re young, you might already have some major debt to deal with in the form of student loans. In 2019, the average graduate left school owing $29,900 in student loan debt.
You might also be dealing with an auto loan or credit card debt, which can be especially tough to pay off because of high interest rates.
Instead of letting debt hang over your head, Marissa Lyda of The Budgeting Wife recommends making debt payoff a priority.
“Pay off your student loans, car loan and credit cards as quickly as possible for a foundation to your financial future,” said Lyda.
If you make extra payments, you can get out of debt ahead of schedule. Once you’re debt-free, you can shift your focus to other financial priorities.
“When you’re young and in your 20s, you have the power to build some serious wealth for your future,” said Lyda. “But it all starts with being debt-free.”
2. Build a 3- to 6-month emergency fund
Although paying off debt is a priority, it shouldn’t eat up all your spare money. It’s also important to put money into an emergency fund so you’re prepared for any unexpected expenses that come up.
“If you don’t have a strong financial foundation in place, you need to start there,” advised Brad Ruttenberg, a certified financial planner based in Florida. “Among other things, that includes an emergency fund of three to six months of your monthly needs.”
Of course, not everyone’s salary makes it easy to build a multi-month emergency fund. But setting aside even a few hundred dollars could be a big help if your car breaks down or you need to make an emergency room visit.
Stephen Nelson, a certified financial planner based in California, recommends putting your emergency funds into a savings account so you’re not tempted to spend it. In particular, he said online banks are your best bet since their accounts come with higher interest returns.
“This is a phenomenal place to park money you are saving,” said Nelson. “This allows you to think twice before dipping into your savings.”
Plus, you can set up recurring transfers between your checking and savings account so you’re building your emergency fund one week or month at a time.
3. Create a budget and stick to it
According to David Carlson, founder of Young Adult Money, a personal finance blog for young people, the best step you can take in your 20s is to create and follow a budget.
“Set aside time to review your spending each month,” said Carlson. “If you don’t know how much you spend on certain categories like groceries, restaurants or transportation, you will struggle to manage your spending.”
Carlson recommends setting a monthly target amount for each category. Then, track your spending to make sure you don’t go past your limits.
You might use a simple spreadsheet, or you could download an expense-tracking app to do the heavy lifting for you.
4. Avoid the trap of retail therapy
Following a budget sounds easy enough, but sticking to your spending limits is a lot harder, especially when you’re having a bad day.
Zina Kumok of personal finance blog Conscious Coins advised 20-somethings to not “spend their feelings.”
“Anytime I feel sad, lonely or depressed, I somehow end up online shopping,” said Kumok. “Sometimes I’ll order a new top or nail polish color. I usually regret my purchase.”
Instead of charging your credit card, Kumok recommends finding more cost-effective ways to make yourself feel better.
“Take a nice walk, call a friend or find an affordable therapist,” she said.
Although you’re feeling down, the lift you get from retail therapy will be short-lived. And if you’re not careful, it could lead to high-interest credit card debt.
5. Start saving for retirement
Drew Parker, creator of The Complete Retirement Planner, said 20-somethings just starting their career probably aren’t thinking of retirement. But starting when you’re young will pay off in the long run.
“Create a written retirement plan as soon as you start working,” said Parker. “It’s not as much about retirement as it is about controlling your destiny, whatever you want that to be.”
By coming up with a plan, you can set yourself up for financial security. And if you can set aside some money each month into an individual retirement account or 401(k), you will reap the benefits of compound interest over time.
If your employer offers a 401(k) match, try to contribute enough to get the full benefit.
“A financial plan is all about what happens well before retirement so that you won’t have to worry about what will happen during retirement,” said Parker. “You may not be able to predict the future, but you can certainly prepare for it.”
6. Don’t be afraid to negotiate your salary
Although many bloggers shared personal finance tips for saving money, Catherine Agopcan, co-founder of Sisters for Financial Independence, emphasized the importance of making money.
“Don’t be afraid to negotiate [or] ask your employer for a benefit,” said Agopcan.
Learn about effective negotiation strategies before your meeting so you’re prepared when you meet with your manager or human resources. It’ll also help if you do your research on average salaries for comparable positions in your industry.
Besides negotiating your salary, consider alternative employee benefits as a way to boost your earnings, including tuition reimbursement or a gym allowance.
“Small things can add up,” said Agopcan. “It never hurts to get these extras added as part of compensation negotiation at hiring or during bonus time.”
You might have an even better chance if you’re working at a new company.
“Startups and smaller companies are constantly revamping their benefits offerings,” said Agopcan. “Give your feedback so you can take advantage of these alternative financial wins.”
Even if your company doesn’t offer specific benefits yet, it can’t hurt to ask about adding them to your contract.
7. Start a side hustle
Working a side hustle is another way to boost your income.
“Instead of binge-watching the next Netflix show, find a side hustle you can make extra money with,” said Kelan Kline, who co-founded The Savvy Couple with his wife, Brittany. “Make sure it’s something you enjoy because your time should never be traded for money.”
Your side hustle could involve anything from freelance writing to starting an online business to driving for Uber. But as Kline said, try to find something you like so you don’t get burned out trying to balance it with your full-time job.
8. Spend less than you make
No list of financial tips would be complete without the golden rule of personal finance: Spend less than you make.
“While this advice is repeated ad nauseam, it is absolutely the bedrock to building any amount of wealth,” said Nelson.
To make sure your spending doesn’t exceed your earning, Nelson recommends setting up automatic savings.
“Each month, have part of your paycheck directed to your savings account automatically,” he suggested. “This will ensure that [you’re saving and] living below your means.”
And who knows? If you follow all the personal finance tips listed above, you might be able to go into your 30s completely debt-free.
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