9 things 20-somethings need to do to secure their finances
When you're in your 20s, and trying to balance school with working and having a social life, you probably don't have much time to focus on your finances. Before you're ready to get a grip on your money, you might make a costly mistake or two along the way.
Becoming financially savvy isn't rocket science, and all that most young millennials need is a crash course in the basics. If you're struggling to get the basics down, or simply don't have the time to figure out where to start, take a look at this list of 10 must-do moves to secure your financial future.
#1. Track Your Spending
Writing down everything you spend might seem tedious at first, but it's a good habit to get into. If you're always running out of money, tracking what you've spent can tell you what's draining your cash the most. Hint: It might be your credit card.
Once you see where your money leaks are, it becomes a lot easier to take control of your spending and savings.
There are tons of apps out there that are geared toward tech-loving 20-somethings, and using them can make managing your finances a breeze. If you need help with tracking your spending, for example, Mint does the hard work for you.
#2. Become a Budgeting Pro
A budget is one of the most important financial tools that every young adult should know how to use. A budget is a plan for what you're going to do with your money each month, and making one isn't as hard as you think.
If you've been keeping tabs on your spending, you're already halfway there. The next step is comparing what you've got going out for bills and other expenses to what you've got coming in.
As long as you have more income than expenses each month you're already ahead of the game. If you're constantly ending up in the red, that's a sign you need to cut back on what you're spending. Sometimes, it can be as simple as skipping that extra latte and opting for a free activity over a day at the mall. Here are some simple budgeting tricks to get you started.
#3. Choose the Right Checking Account
If you don't have a checking account yet, you need to get one pronto. Student checking accounts typically come with fewer fees than traditional accounts and they're less restrictive when it comes to things like minimum balance requirements.
When you're comparing accounts, make sure you're looking at all of the fees and account terms. Convenience is also important, especially if you're going to school away from home, so check for options like mobile banking as well as branch and ATM accessibility.
#4. Save for Rainy Days
Having a little money set aside can come in handy when your car breaks down or your laptop crashes in the middle of the semester. Starting an emergency fund when you're still in school can help you develop a lifelong savings habit.
You don't need a lot of cash to get it going either. If you start saving $100 a month at the beginning of junior year in an online savings account earning 2% interest, you'd have close to $2,500 socked away by the time you graduate. These no-fee savings accounts will help you keep more of your interest.
Having trouble building your emergency fund? The Digit app looks at your spending to find extra money and automatically transfers it to a dedicated savings account.
#5. Get a Head Start on Retirement
At age 20, retirement is probably the last thing on your mind, but it's never too early to start building your nest egg. If you're working, you can set up a Roth IRA and chip in a few dollars to your account every payday. Over time, it can add up to some serious savings.
Let's say you put $100 a month into an IRA starting at age 20. By the time you're 65, you'd have nearly $367,000 saved, assuming a 7% annual return. That's a pretty decent pay off for a relatively small investment each month.
The visual above illustrates another example of how those who save $5,000 annually in their mid-20s accumulate significantly higher returns.
#6. Build Up Your Credit History
Good credit is a must if you're planning on buying a car or a home someday, and there's no better time to start working on it. Opening a credit card account is the easiest way to establish credit in your 20s.
Under the 2009 CARD Act, you'll need to have a steady source of income to get a credit card if you're under 21. If you don't have a job, you'll have to get a parent to co-sign.
Once you get a card, be sure you're using it wisely. That means keeping your balance low and paying it off on time each month. Even one late payment can drain big points off your score.
#7. Take Charge of Your Student Loans
If you've taken out loans to finance your first couple years of college, you don't want to wait until graduation to add up the damage. Take a look at what you've borrowed so far and the interest rate. If you can pay a little each month toward the balance while you're still in school, you'll have that much less debt to tackle once you've finished your degree.
#8. Brush Up on Tax Basics
If you're working and your parents aren't supporting you, you'll be responsible for filing your own taxes. Tax filing usually isn't too complicated for most young adults, but you'll want to make sure you're scoring key tax breaks — like the saver's credit — if you're contributing to an IRA, or the American Opportunity Credit if you're paying any of your own tuition costs out of pocket.
Learning a bit about taxes will help you see opportunities to earn credits and make you familiar of ways your taxes will change as you age and obtain a home, start a family and enter new income brackets.
#9. Have a Plan
The financial habits you develop at this age can set the tone for how you manage your money in your 30s and beyond. Setting goals — whether it's for paying down your student loan debt, building up a down payment for your first home or saving for retirement — gives you a clear roadmap for getting where you want to go.
Look at your debt, income and long-term goals to help create a savings plan that can make them a reality.
Click through to see easy ways to put money in your pocket this year: