10 Money Moves Everyone 20-Something Should Know
Knowing what the right money moves are in college can be tough when you’re locked into studies and no one is requiring you to take a personal finance class. Not to worry! We have some tips here for making sure you’re ready to build a life and a career upon graduation. Let’s begin!
1. Establish Revolving Credit
Revolving credit is a line of credit that allows you to borrow money and pay it back over time. Revolving credit is different from a loan in that you don’t have to pay it off in one lump sum. Revolving credit can be used for credit cards, lines of credit, and personal loans. Credit scores are affected by your credit utilization ratio, which means the amount of available credit you use versus the amount of credit you have available.
For example, if you have a credit card with a $5,000 limit, and you’re using $3,000 of it, then your credit utilization ratio would be 60%. Revolving credit, which is also known as a credit line, is a form of credit that allows you to borrow a certain amount of money whenever you need it as long as you pay it back in full and on time.
It’s important to establish revolving credit in your 20s. That’s because you want to be able to qualify for business loans, car loans, and home mortgages.
2. Save Money Before Taxes
Employees can contribute a portion of their pay to a pre-tax savings program like a 401(k) or 403(b) account. The money you contribute to a pre-tax savings program is taken out of your paycheck before taxes are calculated. This means you won’t pay taxes on that money until you withdraw it from your account in retirement. You don’t have to be a financial expert to understand the tax benefits of investing pre-tax dollars.
If you can save $200 a month, you’ll save a lot more money each year compared to saving $400 a month on a post-tax basis. The best way to get started is to use an online calculator to find out how much less in taxes you’ll pay over time by investing pre-tax dollars. Start this in your 20s, and you’ll have enough to call it a day when you reach the retirement age, especially if you’re saving 10 percent and paying into the Social Security program with each check.
3. Start a Side Hustle
It’s important to have a side hustle because it’s a great way to get started in your new career. Side hustles are a great way to start building a portfolio of work to show to potential employers. Your side hustle is a great way to practice the skills that you’ll need in your new career. A lot of people think they have to quit their job to have a side hustle.
But in reality, there are a lot of things you can do for the side hustle that you can do while still working your full-time job. It can be really difficult to balance it all, but it’s worth it for the extra money and experience that you can pick up. Plus, getting started now will only lead to more marketable skills further on down the line and a greater level of comfort with future technology innovations.
4. Create a Budget
To create a budget, you first need to know how much money you have to work with. You can then allocate money to each different aspect of your life. You may have a set amount of money for your groceries, for example, or for your utility bills and mortgage or rent.
The most important thing is to make sure that you have a budget because without a budget you’re not going to be able to set any goals. You’re not really going to be able to track your success, and you’re not going to know if what you’re doing is working or not. Lacking control over your money leads to all kinds of stressors that are hard to overcome.
Getting on top of this while you’re in your 20s can keep you from making some monumentally disastrous money moves before ever being tempted by them. Even if you have to adjust it along the way, make one.
5. Stick to the Budget
One of the best ways to stick to your budget is to be prepared. Know what your budget is and be prepared to stick to it. When you’re out shopping, don’t go crazy and spend money you don’t have. It’s hard to stick to a budget because it’s easier to spend money than it is to save it. We’re all guilty of going on a spending spree every once in a while, but it’s important to create a budget and stick to it.
The biggest thing that prevents people from sticking to a budget is the fact that they don’t make one in the first place. A budget is a helpful tool for keeping your spending in check and it’s a great way to help you get a grasp on your spending habits. Obviously, the sooner you get that grasp, the more you’ll be controlling your money instead of allowing your money to control you.
6. Consider Taking Personal Finance Classes
If you want to be rich, you have to learn how to manage your money. If you want your money to work hard for you, you have to learn how to manage your money. If you want to be financially independent, you have to learn how to manage your money. Personal finance courses are a great way to gain a better understanding of the world of personal finance. These courses are available online and you can take them at your own pace. Many of these courses are free, but you may need to pay for some of the more in-depth courses.
In most cases, personal finance courses are not required for college. The only exception is if you plan on attending a business school. If you are planning on attending a business school, you will most likely be required to take a personal finance course as part of your core curriculum. Otherwise, it’s up to you.
7. Invest in Stocks, Bonds, and Mutual Funds
The stock market is a great way to invest your money because you can get a return on your investment in a short amount of time. When you buy stock in a company, you’re buying a piece of the company. If the company does well, then your stock will do well and you can sell it off at a higher price.
Bond funds and mutual funds are good for investors who want to diversify their portfolios and don’t want to spend the time and energy to research individual stocks and bonds. Bonds and mutual funds give you a chance to invest in a variety of companies, industries, and countries.
All of these investments make more sense than just parking your money into a savings account. For starters, banks pay very little on savings accounts (you’re lucky to get one percent in many cases). Factor in the 2-3 percent inflation, and you end up losing money. Getting comfortable with investing in those higher-return investments in your 20s will ensure that your money has a longer time to work for you instead of you working for it.
8. Understand What You Are Investing In
It’s important to know the company you’re investing in. You should know how the company makes money. You should know if they’re a monopoly. You should know what they’re doing to grow. You should know what they’re doing to cut costs. It’s not uncommon for people to invest in a company without really knowing what the company does or what the product or service actually is.
When you invest in a company, you’re putting your trust in the company and by doing that, you’re putting your trust in the people behind the company. By knowing what industries a company is in and what it does, you can have a better sense of how the company is going to do as a whole, and how it’s going to do in the future.
Knowing what companies do will allow you to make smarter investment decisions. It will also allow you to know whether your investment is a violation of conscience. More and more Generations Y and Z want to ensure they’re only supporting responsible companies.
9. Do Not Be Tempted by Risky Investments
Investing is risky. There’s no such thing as a risk-free investment. It’s important to consider your investment goals and then to choose an investment strategy that aligns with those goals.
Investments like cryptocurrencies are very volatile at this point and not for the risk-averse. There have been many, many people who have lost a lot of money investing in cryptocurrencies. FOREX also is very risky. It’s volatile and full of scams. Never put more money into it than you can afford to lose.
10. Establish Your Short, Medium, and Long-Term Goals
If you don’t have short-term financial goals, it’s hard to achieve long-term financial goals like buying a house or paying for your kids’ college. These are things you’ll need to start considering in your 20s as your desire to start a family and build a career or business takes hold.
Having medium-term financial goals is important because they give you something to focus on and work towards. You don’t want to just have long-term financial goals because they’re so far away you don’t have any idea how to get there. Think about where you want to be by the end of the year, the end of three years, and the end of five. Let that be your moving target as the years’ progress, and don’t be afraid to adjust them as needed.
These Money Moves Will Lead to Stability and Prosperity
The money moves that you make fresh out of college or trade school when you’re still in your early 20s can follow you for decades to come. They can be either the start of fiscal responsibility or a long road to ruin. Every decision at this point matters. Having a good financial head on your shoulders as early as possible will keep you from making decisions that you’ll live to regret. Good luck as you set out into the world, and make sure you keep the money moves presented here at the front of your mind.
[Featured Image by Flickr Creative Commons]