The vast majority of income earners struggle with debt and similar financial issues. While some of us keep sinking deeper into debt, others gradually manage to get out of it. Ideally, you should be in the latter group. If you are worried about the finances of the future, here is a list of good habits you can develop now:
Saving for Emergencies
Perhaps the most important financial habit you can develop at any age is saving. Regardless of their income level, all twenty-somethings must have an emergency savings fund. Don’t rely on your parents or an insurance policy of theirs to cover you in a time of financial emergency. Think about financial emergencies that you can reasonably expect in the future. Health problems and associated hospital bills are one. Unexpected repair costs related to your home or car would also count. Most insurance policies don’t pay homeowners if the roof caves in after a night of heavy snowfall. You will have to bear some unexpected expenses on your own. That’s why it’s crucial to have an emergency savings fund that you should not dip into unless it’s a crisis.
Investing at Least Small Amounts
Your twenties and thirties are truly the best years for investing, as you can take on more risk as a young employee than as an adult worker about to retire. For example, you can engage in risky investment activities like day trading aiming for high-end payouts. If you do lose money, you will be young enough to earn it all back. This is not a luxury you can experience as an older investor. When you are in your fifties, with retirement on the horizon, you won’t be able to take on certain levels of financial risks as an investor. Even though investing is different from gambling, a bad call could result in you entering retirement with debt.
Having a Retirement Plan in Mind
Retirement is probably the last thing on your mind as a twenty-year-old just starting out in the workplace. If you currently have a steady job, you should start planning for your retirement. You can start by doing things like matching your employer’s 401(k) contributions. You could also consider opening your own IRA. In any case, you should at least consider a retirement plan in your twenties. Not only does this help you prepare for actual retirement from your thirties onwards, your savings would also have more years to compound.
Create a Household Budget
Are you monitoring your current income and daily expenses? If not, it is certainly time to start doing so. Learn how to create a monthly budget for your household. You should know exactly how much you pay for everything from utility bills to movie tickets. A household budget will help you eliminate unnecessary expenses and set you on your way to paying down debt.
Making Paying Down Debt a Priority
The vast majority of Americans graduate college with debt. If you are in your twenties, you will most likely be nose deep in student loans. Therefore, you should pay off your student loans early in order to be debt-free as soon as possible. Some people in their late twenties may also have auto loans and perhaps even mortgages that need paying off. It’s tempting to spend everything you earn each month as a young person. But resist this urge and make reducing your overall debt a major financial priority. Remember, as the debts you owe age, the higher the interest payments would be.
Consider the above essential money habits that you need to practice right now to become financially secure in the future.