The 20s are considered a defining decade. For many, it is the first time they have moved away from home, learned vital life lessons, and received their first paycheck.
Along with all of these exciting milestones, it’s also the decade that you take on the responsibilities of adulthood, such as building a solid financial foundation for the future.
Read ahead of time what steps you will need to take to successfully manage your finances for years to come.
Create a budget and get into the flow of funds
While it may sound cliché, planning your finances starts with creating a budget.
Keeping track of how much money is in and out of your bank account each month can not only save you for financial goals, but also make sure you don’t run into a negative balance.
When it comes to budgeting, there are plenty of free resources and apps available online that can automate the process.
If you’d prefer to plan your own monthly budget, keep in mind the 50-30-20 rule, which advocates breaking your income into three main categories:
- 50 percent should be spent on essential needs;
- 30 percent should be used for discretionary spending;
- 20 percent should be used for your savings, investments, and emergency expenses.
For example, let’s say you make $ 5,000 a month, after all taxes and deductions.
As a rule, $ 2,500 should be spent on your needs, $ 1,500 on your needs, and the remaining $ 1,000 on your savings and investments.
Of course, that is easier said than done. However, it is possible to follow this plan if you distribute your money based on the category an item falls into.
The good news is, once you have a budget, half the work is done. Remember to check your budget goals occasionally and adjust your budget as your income changes.
Maintain a good credit score to unlock benefits
With good credit, you can qualify for the best home loans, personal loans, credit cards, and more.
In other words, your creditworthiness can be a determining factor in whether or not you qualify for certain financial products.
This, in turn, can affect how much money you save on interest payments or the credit card benefits that you receive.
Wondering what it takes to build good credit? First, spend as much as you can and pay your bills on time each month.
It’s also important to keep your credit card balance low and to keep your credit history checked year round.
Build an emergency fund to save for uncertain times
Setting up an emergency fund can help cover unexpected expenses such as medical bills or an urgent home repair.
Instead of applying for personal loans and comparing interest rates, your emergency fund offers you a financial cushion in uncertain times.
When it comes to starting an emergency fund, consider opening a high yield savings account and start with an achievable financial goal.
For example, if your goal is to save up to $ 1,000 a year, you can work backwards and plan to save $ 20 each week to meet your annual goal.
It’s a good idea to focus on saving as much as you can afford after taking your monthly living expenses and bills into account.
Choose the right investments and insurance
A holistic financial plan includes investments and insurance. When it comes to investing, there are several types, ranging from stocks to bonds to real estate.
Likewise, there are different types of insurance plans such as health insurance, auto insurance, home insurance and more.
However, there is one type of insurance that is often overlooked: Resale Endowment Insurance.
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A life insurance policy is an insurance plan that has been sold by the policyholder to a third party broker. The third party provider then sells these existing endowment life insurance policies to investors.
The main difference between a resale life insurance policy and a new endowment life insurance policy is the length of the commitment. If you prefer a shorter commitment period, resale capital insurance could be the right option.
Providers or brokers like REPs Invest are looking for investors who want to benefit from endowment insurance but don’t want to spend 25 years seeing the fruits of their efforts.
This also means that with a higher return value, you can enjoy the flat-rate payout much faster.
Regardless of whether you apply some or all of the tips above, you will start making smart financial decisions in your 20s.
By planning ahead and taking the right steps today, you can achieve your future financial goals.
This article was first published in ValueChampion.
