5 financial tips everyone in their 20s needs to know
By Hanin Najjar
Managing your money is not really something that anyone teaches you (especially if you’re a woman), but it’s probably the most important thing you will learn in your life. Learning to manage your money can be the difference between retiring at 70 or 50, buying a house or renting for the rest of your life.
Here are some financial tips that will set you up for life if you master in your 20s:
Build a credit score as early as possible
Credit scores are important for renting an apartment, buying a house, leasing a car and so on. It tells the bank whether or not they can trust you enough to lend you money for big purchases.
Unfortunately, credit scores aren't always in our control, since some people start early when their parents open a credit card for them, and some are unfamiliar with the process until adulthood. If you don’t have any credit cards or credit history, it’s never too late, but the earlier you start, the better.
You can learn more about building and improving your credit score with the article “Building credit in your 20s.”
2. Buy everything on a credit card and pay it all off each month
Credit cards are great for points, cashback, travel and much more. Buy everything on a credit card, but never spend money you don’t have. Pay off your credit card in full at the end of every single month.
The average interest on a credit card is $14.5% and it can go up to 35%. That’s a lot! Credit card debt is very hard to get out of, so try really hard to never go there.
3. Save up for emergencies
The best way to stay out of debt is to have an emergency fund for when things hit the fan. You should have a minimum of 3-6 months worth of expenses in a savings account where you can easily access it. If you have children, pets or other responsibilities that are prone to sudden emergencies, aim for 10-12 months of expenses.
Do not invest your emergency fund. It should be easy to access whenever you need. You can, however, put that money into a high-yield savings account which will grow your money more than a regular savings account.
4. Learn about investing
Investing is the fastest way to becoming a millionaire, the best way to gain financial independence and the only way to save enough to retire.
You have a huge advantage over the biggest brokers on Wall Street: time. The earlier you start investing for the long term, the more money you will make.
Women lose up to $1 million in their lifetime because they start investing later.
Check out “Shemade’s guide to beginner investing” to learn the basics of what you need to know.
5. Max the matching on your 401k
A 401k is a retirement account that you can open through your work. This account allows you to put a percentage of your paycheck, pretax, toward your retirement. Many companies offer 401k matching, which means your workplace will match up to a certain amount you put into this account. Max out the matching.
If your company will match up to 3%, put 3% of your paycheck into the account. If it will match 6%, put in 6%. The 401k matching is free money. Don’t leave it on the table.
Gen Z will job hop a lot more than older generations, which means each person might have multiple 401k accounts with multiple employers. Don’t lose track of your accounts because you will be losing a lot of money.
Capitalize is a service that finds old 401k accounts for you and rolls them over into an IRA account. The service is free to use because the company makes money if you choose one of the IRA companies they work for. If you have an existing IRA account, they can rollover the money into that, too.
Header photo by Andrea Piacquadio
