There’s no age where we have to have it all figured out — financially, professionally, or in any other aspect of our lives. But, there are certain habits and efforts that if we start now, can pay off in the long run. Figuring out some financial fundamentals in our 20s tees us up for financial success as we progress into some of our highest earning years in our 30s and beyond.
1. Bulk Up a Savings
We can’t say it enough, but your emergency savings is really the very first place to start building out your pre-30s financial plan. Aim for three months of expenses. Consider six or more if you have major life changes on the horizon like leaving your full-time gig or heading back to school.
Where exactly you save your money will depend on your total financial picture. You might want to consider a higher-yield savings account if you can handle minimal transactions. If you’re set on an emergency fund already, consider a few different types of savings products for really specific needs like long-term cash stashing for a house or other major purchase.
2. Give Every Single Dollar a Job
By the time we hit our 30s, we should have a personalized financial routine that fits with our lifestyle and goals. I’ve found over the years that slightly reframing the narrative around budgeting to “giving every dollar a job” helps me get over my resistance to tackling some financial goals. For me, this starts all the way back at dollar one — meaning looking at my gross salary and understanding every. single. thing. that comes out of my paycheck. Am I withholding enough taxes? Am I maximizing my health and lifestyle benefits from my company? What other pre-tax savings or programs could I be taking advantage of?
What’s left — AKA my actual paycheck — gets allocated in a few different directions. Automate whenever possible, make a decision only a couple times of year to tweak your savings rates, then see if your paycheck can be split to different accounts. Set up your bill pay for absolutely everything, and consider using investment apps that round up small purchases and drop the change into an investment account without you having to do a thing. A little bit of effort goes a long way to having a full financial ecosystem established that is personalized and works for you.
3. Splurge on Something Important
As we move toward our 30s, we may have the privilege of having a little more financial flexibility. This is a great stage of life to start moving toward investments outside of a bank. A non-financial investment can mean a million different things. Maybe it’s important that you take that once-in-a-lifetime trip with friends before you take on a new career chapter. You might decide it’s a good time to pour some money into a professional certification or graduate degree that will pay dividends down the road for your earning potential.
An important-to-you investment could even be a gorgeous piece of jewelry to celebrate an accomplishment or mark a life milestone. Whatever it is, it’s nice to start accumulating lasting experiences, memories, or life needs during this stage of our money management.
4. Get Your Retirement Game in Order
When is the best time to start saving for retirement? Right. This. Minute. In our 20’s, retirement seems really far off. There can be so many other expenses to start taking on early in our careers it can be challenging to talk ourselves into prioritizing something 40 plus years from now.
You are taking major control of your finances if you start today, however small, putting away retirement money. First off, most employers will offer some sort of a match to whatever you put in yourself, so you’re leaving free money on the table if you don’t take advantage of that benefit. Second, the time value of money is powerful. We’re talking real dollars powerful. If you start saving for retirement at 45, putting away about $500 per month and earning around 7% a year, compounding annually you’d have around $245,000 if you retired at 65. Start that same plan at 25 and you’d have well over $1,000,000. Let’s go check those contribution numbers, shall we?
5. Plan to Take Down Student Debt
It’s almost inevitable for most of us that we’ll end up with student loans to finance part of our education. Regardless of if we’re still pursuing advanced degrees, pre-30 is a perfect time to lay out the life plan for how you’ll manage and chip away at that student loan debt.
Student loans usually have pretty competitive interest rates, but that shouldn’t keep us from hustling to pay them down. Where you can, make extra payments and take advantage of how that can positively impact the overall balance you’ll owe in your lifetime. You may also want to consider refinancing student loans, but be careful of going from a publicly supported federal loan program to private funding. The latter can mean you forfeit some tax and other public benefits if you ever work for the federal government so be sure that a lower rate doesn’t offset these opportunities.
6. Make Peace with It
For a long time, I let my lack of comfortability with money leave me on the savings and investment sidelines. So much of moving my financial future forward in my adulthood was about making peace with money. Getting comfortable talking about it, asking for it when I took on new responsibilities, and knowing what to do with it when it came in the door.
Getting fluent in finance and making peace with managing this major life resource is essential for positively affecting all these other areas of money management. If you’re still on the fence with the relationship you have with your finances, start small. Consider how to integrate money into your overall self-care rituals. (Yup, managing finances is a big high five to future you.) Don’t know where to begin with a budget? Yes, all those apps make our lives slicker, but if decision fatigue is freezing you out, just pick up any old notebook or spreadsheet and have at it. Choose starting now over starting “perfectly”.
7. Give It Away
Few things make me feel more like I’m adulting than sharing resources with causes I care about. We don’t have to wait until we’re major moguls to give back to those in less fortunate situations or to advance social issues that we’re passionate about. Micro-donation platforms make it easy to give small amounts automatically or on the spot depending on what your budget allows for. Not only do these small dollars add up to do major good, I find that I feel more in control of my finances when I can make room for these causes.