While everyone is telling you in your 20s that you have your whole life ahead of you and you are young. Do not underestimate the importance of the financial decisions you make in your 20s. Making smart money moves when you are just starting out in life can make all the difference in the success of your financial future. A few smart choices and strategic cutbacks in your 20s may actually help you have the means to have an even better quality of life in the future.
Did you know that your 20s are the perfect time to start creating good money habits? In fact, the good financial habits created in your 20s can save you needless debt and unnecessary financial burdens later in life. Learning budgeting, spending, and saving habits now will set you up for a sound financial future. Here are some financial tips to help you understand why you need to watch your spending and start saving now to get started down the right financial path.
1. Understand Gross vs Net Income – When you get your first job, it can be difficult to understand exactly how much of your gross income (total money earned) you will actually be taking home (net income) after taxes, health insurance, 401k contributions, etc. This is important to know when budgeting for your monthly bills, so referring to an online tool that can help you estimate your net pay can be helpful.
2. There’s More to Housing than Just Rent - Understanding that your monthly billing expenses include more than just rent is crucial when budgeting. Be sure to include expenses like utilities, Wi-Fi, television/streaming services, parking fees at work or home, and renter’s insurance that may be required at your rental home or apartment. Monthly housing costs are typically around 36% or less of your gross income.
3. Don’t Forget Your Student Loans – If you are a recent college grad, your new budget may have to include student loans. It is crucial to pay these loans on time to avoid adding interest to the loan and to keep a good credit score. Late payments on student loans or any type of loans or bills can have a negative impact on your credit worthiness. In addition, many federal student loans offer lower interest rates if you sign up for direct payments from your bank account.
4. Socializing Comes at a Cost - While hanging out with friends is a lot of fun, the choices you make when dining out, going to concerts, and weekend getaways definitely add up. Excessive socializing can wreak havoc on your finances unless you designate a monthly amount for these activities when budgeting. And most importantly; all living expenses should be paid before any money is spent on socializing.
5. Automate Reoccurring Payments – Setting up your bills on autopay can help keep you organized and keep money in your pocket by avoiding late fees. Not only will this help you save money, but paying your bills on time will help build credit and increase your credit score, which will result in lower interest rates for loans and credit cards.
6. Use the 50-30-20 Rule - One of the most popular percentage-based budgets is commonly known as the 50/30/20 rule. This budgeting tip divides your income into three spending categories. Following this method will allow you to pay your bills, enjoy life, and grow your savings.
The 50-30-20 Rule Budgeting Method
• 50% on Needs
• 30% on Wants
• 20% on Savings
Your 20s are a great time to start developing good spending and saving habits. Learning to budget and invest while you are young can help you prevent unnecessary debt, save money for important things, and help you build a nest egg for the future.
Once you get the hang of budgeting and making informed financial choices, you will find that you are able to SAVE a little every month. A great way to ensure that you get the most of your savings is to deposit them into an Axcess Rewards Account with Finex! We have different account options to choose from all tailored to fit our members' individual needs. If you have any questions about which account is the best option for you, feel free to contact us today!
