We know that public education today is short on the subject of financial literacy, so unless parents are teaching kids about finances, many youngsters are finding out about good financial decisions the hard way — through making mistakes. I just turned 30, and I wish I had done quite a few things differently. The following are 7 financial moves to make in your 20s that I wish I had made. If you want to increase the chances of prosperity down the road, do it, and remember to teach your kids:
- Live Within Your Means: This seems terribly obvious, but for many, it isn’t. I know. I spent the first three years of my 20s engaged in instant gratification, using my credit cards so that I didn’t have to limit myself on food, clothes or fun. Cleaning up that mess took almost the rest of my 20s (until I was 27), and set me back some. Start now to live on a budget that allows your outflows to remain smaller than your inflows.
- Pay Down Debt: The average college student has $4,138 in credit card debt, according to Sallie Mae. This doesn’t include car loans, student loans and other debts. If you have debt, work now to begin paying it off. (Here are 25 tips on paying down your debt)
- Develop a Savings Habit: If you haven’t been saving money since high school (I have my seven-year-old son saving part of his allowance now), your 20s is a good time to develop a savings habit. Consider the money that goes into a savings account an essential part of your budget (tip: you can even make it automatic by diverting a monthly amount into savings). Start with an emergency fund and go from there.
- Begin Investing: I know people who opened an IRA in high school, once they got their first jobs. Sadly, I am not one of those people. I did, however, open a Roth IRA in my mid-20s, even though I didn’t put much into it to begin with. The earlier you start investing, the more money you will have down the road, thanks to the awesome power of compound interest. If I had started just five years earlier, I could have thousands more in my retirement account than I do now.
- Cultivate Marketable Skills: Your 20s is a good time to cultivate skills and education that can benefit you down the road. Consider what skills will be in demand in the coming years, and consider what you enjoy. I am fortunate enough to have earned a degree in Communications, and go on to acquire a M.A. in Journalism. These skills allow me to work from home as a freelance writer, supporting my family while my husband works on a Ph.D. — so that he can enter a field with growth-potential: the environment and public health.
- Establish Credit: While you don’t want to get out of control with the credit cards, it is important to start establishing credit while in your 20s. Be careful, though, that you work towards establishing the good kind of credit. A credit card, for example, can be one of the most effective ways to do this, but only if you pay off the balance each month. You can also get a small auto loan or other small obligation that you can make monthly payments on. This will help you in the future as you buy a home, and even as you look for good deals on auto insurance.
- Choose Your Life Partner Carefully: While you don’t have to see eye to eye on every financial issue, you should still choose a life partner that has the same goals and values as you. Even if your partner has issues now, you are on the right track if he or she is working toward financial improvement, and you can support and encourage each other. If you plan on combining your finances with your spouse, communication and honesty are especially important.
Finally, don’t forget to live a little. Money is supposed to be used, in part, for your enjoyment. There are many frugal travel ideas (consider Peace Corps, teaching English abroad and similar opportunities), as well as low-cost entertainment (camping, discount movies, going to the park) options. If you are paying tuition by the semester, and have room in your course schedule, take a class just for fun. You want to learn how to use money so it benefits you now and in the future, rather than letting it make you a prisoner.
Saving money is about freedom, and doing it early in your 20s will get you there that much quicker.
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{ 33 comments… read them below or add one }
These are great suggestions. The $64,000 question…how to get 20 somethings to even think about saving and investing…you can’t get them off of their smartphones and Ipods.
It starts with talking with them in their teens and it’s the parents’ job…it’s OK if schools want to join in as well.
Good post.
Well, there are financial apps for smart phones and iPods
So maybe they could learn that way. But yes, it is vital for parents to help out. I’m already teaching my son about money, hoping that he’ll do better than I did in my early 20s. But, my parents tried to teach me, and it took me years to admit they were right…
I think that if someone wrote an app that automatically shows their cell phone usage and relates that to money, or better yet, the cost of another gadget, they would get the message.
For example, if an app would pop up every few days and tells the user that they’ve already used a total of 99 days on their iPhone, which cost them 40% of a new 26″ HDTV, that’d teach them to save a bit more and cut back on their plans
I think people tend to overlook the power that a good spouse can have in your finances. And, the opposite is true: a bad choice can cost you more than just in the emotional, romantic sense.
Glad you pointed this out!
These are all the basics, that’s for sure. I started investing at age 22 (albeit not with much $) but I still rang up credit card debt (partly because I had to for school) on the side. Keeping the credit card debt down is really important. Almost 10 years later, I’m only just getting to a place where I can be credit-card-debt free. You don’t want it to have to take that long! Dear recent grads: Don’t think you’re special and any different. The debt will pile on for you just as quickly if you don’t keep track of how you’re spending.
So true! We all like to think that we’ll get some magical and lucrative job as soon as we’re done, and then we’ll wipe all the debt away. But the truth is that the habits cultivated will remain — and you probably won’t get that perfect job as a recent grad.
Only 28 here, I WISH I read this post when I was 23ish or 20…oh the things I would tell him/me.
I think I would start with Idiot you don’t need to get the 3rd round shots!
Hahaha. I’d tell myself: “Really? You’re going to Vegas AGAIN? Maybe you should just stay home, pick up an extra shift and pay your balance off this month.”
You are still young at 28. Many people at 38 still wants to get three or more rounds of shots every Thursday night!
These are all really great suggestions.
I especially like the one about establishing credit.
Knowing how to effectively manage your debt and credit cards is essential if you want to be financially well off down the road. This blog and many others are great places to learn and educate yourself on the topic of this!
These are great tips, and many pertain to people of all ages. The most important point is that some basic financial education happens early in life – I really believe that financial awareness that is ingrained at an early age will become a part of your every day thinking. Thanks for the great article.
We definitely tend to stay with what we already believe in early in childhood, and actually, it’s much easier to shape our habits early rather than later, so take the time to learn early!
I think the “create marketable skills” is the most important tip here. It’s hard to be financially successful if you can’t work or generate income, so education is VERY important. But paying down debt is difficult while you’re still in college, so I think that should be put on the backburner until you’re financially stable.
I wouldn’t put paying down debt in the back burner though. It’s true that spending time gaining knowledge and learning skills are important, but the earlier you can start paying down debt, the better off you will be.
Solid list. I second teaching English abroad since I’m currently in Japan. It’s a chance to travel and see the world, while still receiving a monthly paycheck. Not many jobs can claim that, right?
Austin @ Foreigner’s Finances
I also know quite a few people who are teaching English abroad. The pay seems to be good, and it’s also a good chance to absorb foreign culture by interacting with the students.
I would add that learning contentment, and not trying to impress others is a key factor. Many bad habits are created in a persons 20′s, and while it would be nice to skip the learning curve of life, I am the person that I am today because of the mistakes and lessons Ive learned along the way. Sometimes unfortunately we have to learn the hard way.
You make a great point! We do need to learn to be happy with what we have, and learn to be satisfied with ourselves.
How about “stop slacking off and disrespecting your elders, punk!” That might help some folks.
I’m in my early 20s and I’m thinking about investing in a Roth IRA. Wow- as early as high school? They must be rich by now or have a pretty good financial safety net. Any additional information on how to go about or tips in general? It would be very much appreciated !
My college roommate fully funded her Roth IRA for the year as her graduation present from high school. Granted, her family was much better off than mine to be able to do this, but given that many of her friends were buying Gucci bags and the like, it was a good decision.
If you have a job, and file a tax return, you can open an IRA — including a Roth. One good way to do it is to look for low fee funds to put in your Roth IRA. You can usually get started at an online discount broker that charges very little, and that offers access to IRAs. Additionally, companies like Vanguard and Fidelity also offer IRAs and Roth IRAs that you can get started with by investing in low-cost funds.
I’m 27 and I agree with everything you say here. I feel I was lucky in my situation that my parents ingrained into me a sense of frugality. It never occurred to me that I could carry a balance on my credit card since my parents never did so. In fact, I remember one time I thought I wouldn’t be able to pay off the balance on one card by the due date when I was 18 which kept me up all night long.
I think a lot of it has to do with how and what my parents taught me about finances, and I am very grateful to them for that.
Huh. I must just run in a weird crowd of 20-to-23-somethings (very diverse economic backgrounds too). All of my crowd are financially responsible, the only one I know who carries a balance on his credit card had to buy really expensive books during an otherwise tough month, and most have modest (some huge) savings. All the financially irresponsible people I know are 28 and up, many of them my parents’ ages. Although I suppose it follows that given statistically that most people our parents age are also irresponsible with money that my peers, their children, would be as well, my crowd seems to have learned from their mistakes, even in the absence of guidance.
So this begs the question–are my friends exceptionally weird or is all this “20-year-olds are awful with money!” criticism the result of current middle-aged people who are still bad with money projecting their youthful follies on those of us who took one look at them and decided to make better choices?
Some statistics (http://www.money-zine.com/Financial-Planning/Debt-Consolidation/Credit-Card-Debt-Statistics/):
-College students are more likely to pay off their credit card balance than any other demographic group studied.
-The average cardholder has $5,100 in credit card debt. Now, $4,138 is bad, but people in their 20s are clearly not the worst age bracket at managing their finances.
I could go on.
I am so tired of hearing how “…public education today is short on the subject of financial literacy…”. This is a complete load of crud. You may as well say that public education doesn’t teach people the most economical ways of wiping themselves or putting bandaids on cuts. Can you do simple math? Can you read? Can you compare things and make an informed decision? Then public education has done its job. I won’t go into the fact that compound interest is covered in math (multiple times from elementary on), budgeting is covered in whatever “home economics” is called now (so the guys don’t feel too embarrassed to take it) which is required in most states I’m aware of, or that most social studies classes cover issues associated with stocks and investments as project ideas. The problem is that most people didn’t care when it was taught to them and have forgotten it, just like most people forget the bulk of the history they learned, forget the details on how the government works, forget the different types of poems, and forget about trig functions.
Face it, we put effort towards things when they a) interest us or b) can’t be avoided. Most people “get religion” on finacial issues in their twenties and thirties because of b. You could teach it like they teach English for four years (how you could take two weeks of material and stretch it that far is another matter) and you’d still get a large part of the population screwing it up, because until it’s in your face it’s easy to ignore.
I certainly think you have a point. I don’t think people are criticizing the public school systems for not teaching simple math, English, or comparative reasoning. I think what people are saying is that the many 20-something (or 30, 40 or even 50-somethings!) don’t understand the more complex intricacies of financial planning- the difference between a Roth IRA or a 401K, how and where to start investing, when to know when stocks are a good option or a risky investment.
I agree with you that people need to take responsibility for their actions, spending and use a basic budget (that’s NOT rocket science!). However, as a 20-something with little parental guidance on finances I wish there were more resources offered in high school in regards to investing.
Great article, Miranda – and good points all! There is one more item I would add to the list: Develop a long range strategic plan.
Of course, that financial road map is probably going change over time as life gets in the way, but it’s a really necessary and sensible task that all young adults should employ – if only to get them thinking about their future.
Best,
Len
Len Penzo dot Com
Choosing a life partner is HUGE for a successful life. I have been blessed to choose well.
Absolutely begin investing early. Also diversify your investments to make sure that your long term investments are low risk. Decide on a balance of high and low risk investments, depending on how much you have to invest and how long you will be investing for.
Do NOT listen to the people telling you to “build credit” and pretending there’s such a thing as “good debt”. That’s a lie. Listen to Dave Ramsey’s radio show, check his books out at the library, and don’t throw your 20s or 30s away on bad advice (read: lies) like, “Everyone has to have credit,” and “No one can live without credit.”
I’m 19, and am aggressively saving my money now. I will be finding a 2nd job tommorow- to save even more. By 21- i want to be independent, and out of my parent’s house. From age 16 to age 19- i invested my money and lost thousands- so now im focused on saving my money. currently i have a work at home job, and so tommorrow i will try to get an outside job. When im 21- i will go to hollywood to pursue acting/stand up comedy- working 15+hrs/day to be successful with that, and working pt- with my work at home job. The great thing is when im their in hollywood- i’ll be good financially- because of my aggressive savings from age 19 to age 21. which i’ll be 20- next month. I may leave my parents house right when i turn 21- or 3 mths or so after i turn 21. but i know it’ll be 21! hopefully right when i turn 21. i am working my ass off non-stop to make more money, and save more money. I have always been extremely serious about money since i was 16- but just didn’t save- i invested- in hopes of being rich. but i will save now, and later- invest a little from what i can afford to lose.
check me out on myspace.com/alfredkelley
Thank you for the insight. Wish I had this info 30 years ago. I started saving only at 35. Since then i have come a long way and i am considered wealthy and with a Masters in Economics. However, i wasted a lot of money on frivolous things in my 20′s and early 30′s. As rightly pointed out, i have a good partner who is a finance major and we save and invest. Every 20 yr old must read this article.