They don’t teach finance at school or college so in some ways you are on your own; it is just important not to make any costly mistakes while you are learning so here are a few guidelines for you. If you are casual about money because suddenly you have a regular check coming in each month it is remarkable how quickly time will have gone by without your putting anything aside. If you start out with good habits you are likely to do well and many years hence you can have that comfortable retirement that everyone seeks.
Begin with a budget
A recent survey by T. Rowe Price actually found quite a high percentage of those in their 20s and early 30s confirm they have a budget and live by it. If you create a budget that shows a surplus each month and you follow it properly you will have a surplus that you should use in a positive way. Your emergency fund and retirement savings are obvious possibilities. If you are in the minority that does not follow a budget then you should start today.
An emergency fund
Credit cards are expensive. Companies charge a high rate of interest on month end balances. They are a poor solution to an emergency if you cannot pay off what you have spent in the month. Everyone should try to build up a fund to use if an emergency happens; medical, home repair or car are all possibilities. It seems that 30% of Americans have nothing set aside for emergencies when in an ideal world they should have a minimum of three months regular expenditure. There is no exact science as to how much you need in an emergency fund but if you have nothing then you face potential problems.
Address your debt
If you have built up credit card debt you may be living beyond your means. If you are employed and have a regular income then take out a personal loan to pay any balances off. They are readily available at a far lower rate of interest than you will be paying on a card. The application process is fairly simple; ID, address, work and income and bank account details are virtually all it will take. Realistic applications are generally approved in hours and the money deposited almost as quickly.
Student loans generally are fairly soft online loans at competitive interest rates but they still need to be cleared. Education is becoming progressively more expensive, way above the level of inflation but the rewards for successful graduation should result in improved career prospects.
New skills
It is worth taking a little time to think about how you are doing and whether you can do more. That may be by learning new skills so that your career can progress more quickly or even take a different route. Wages are not rising particularly quickly so sometimes it is important to make yourself potentially more valuable.
Retirement savings
The absolute minimum you should do is to join a 401(k) retirement which your employer will contribute towards, matching your own contributions up to a certain level. It is the equivalent of ‘’free money’’ and the earlier you begin to save the more time there is for growth. Even a small amount every month is better than nothing.
Figures suggest that too few people are making adequate provisions for their retirement and the Social Security System is not equipped to do other than support retirement.
Investments
Most surveys of those in their 20s suggest that most admit to knowing very little about the stock market. The younger you are the more risks you can take because time is on your side if you need to recover losses. You should not start to invest if you have no knowledge but it is something that is worth investigating. In the end you will need to have some idea because your 401(k) is a self-help plan where you will have to make decisions about where to place your money.
Summary
You may think the whole world is at your feet in your 20s and in many ways it is if you have got the qualifications you need and your first job. What you should do now is make sure you understand the importance of financial management. If you prepare your budget and get rid of expensive debt that is a start. There will always be calls on your money but none should be more important than regular saving. In your 20s time is on your side.
James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.