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 to help you pay down 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.