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If you forget about planning for the future, you can easily be overburdened by your current financial condition. This is particularly true if you’re juggling rent, student loans, and car repayments. Many Gen Zers are going through this, making it hard for them to manage their wealth.
While the generation is comprised of some of the youngest adults, they are still faced with financial issues. Luckily, they’ve got time on their side. So, here are nine pieces of advice that will help you build and manage wealth while making money in your 20s.
1. Create a Solid Financial Plan
To know where you’re heading financially, you need to have a solid financial plan. You want your financial plan to include everything from purchasing property to retirement. Then, determine the steps to take to reach your goals.
Make sure the plan is clear, actionable and realistic.
2. Control Spending
How you spend money in your 20s directly impacts your future financial health. Most financial advisors recommend spending 50% of your income on necessities, like rent, 30% on wants, and saving the remaining 20%.
Tracking your expenditures can help you determine where your money goes. You might find out that you’re overspending on entertainment, dining out, or groceries. Then you’ll know which items to cut back on.
Emotions are known to cause lots of individuals in this demographic to spend more than they can afford to lose. You can avoid unnecessary spending by waiting up to 3 days before making an impulse purchase. This way, you’ll have time to establish whether the purchase actually fits your budget.
3. Save for Emergencies
Get in the habit of saving money in your 20’s so that later you won’t have to wish you did. Saving money now, however small, will build up over time and help ease your dependency on credit cards.
An emergency fund is critical. Ideally, the emergency fund should cover anywhere between 3 to 6 months of expenses. Having said that, don’t quit when unforeseen expenses push you to tap into the fund. You can (and should!) replenish it.
Also remember that emergency funds are designed to cover you in case of financial upheavals: medical bills, job loss, car repairs, and other unexpected costs (not vacations, nights out, or new shoes!)
4. Get Renters Insurance
Simply put, not having renters insurance for your home isn’t a good idea. This type of insurance policy protects most of the things you own, like your furniture, jewelry, and high-end electronics.
Better yet, the insurance can come in handy in case your entire apartment floods due to water bursts, you have a fire in your kitchen, or you face some other type of disaster. Renters insurance can also pay for you to stay elsewhere while the disaster is being fixed.
5. Update Your Financial Goals
As your income changes over time, update your goals and objectives. If your financial situation changes, then you may want to meet an independent advisor to help you adjust your goals accordingly. Similarly, if you embark on new life adventures like buying a home, getting married, and having children, you’ll need to rethink your plan.
6. Embrace Investing
Gen Z is made up of many young adults who don’t believe they’ve got enough money to save. Sometimes they rely on trying to make ends meet while fearing the risk associated with investing.
Keep in mind that the younger an investor is, the better they can handle risks. If you make money in your 20s and invest, you’ll be ahead of the game. Since you have many years until you’ll need to tap into your investments, this typically means a few setbacks won’t completely throw you off course.
Investing in the stock market can be profitable, but, if you’re concerned about your ability to choose your investments, you should consider recruiting the help of an experienced independent advisor. On the other hand, if you’re familiar with trading or willing to educate yourself, then you may be able to do it on your own.
7. Avoid Misusing Credit Cards
Once you’ve started earning a steady income, credit card companies will flock to your door with card offers. Don’t fall victim. To be sure you can manage your resources, start by managing your debts.
Start living debt-free today by not getting a credit card because your peers have them. A credit card isn’t a true reflection of the money under your belt. In reality, it’s borrowed money, which you’ll eventually have to repay.
The misuse of credit cards can quickly get you into a debt that can take you years to settle. However, if you must use a credit card, then be sure you can clear the balance monthly. Staying on top of your credit card usages can help build your credit score.
8. Budget Every Month
Start budgeting so you know where every penny goes, why, and ways to maximize all your earnings. Budgeting is one of the most important decisions that will help you save more money in your 20s. The sooner you create and stick to a budget, the better off you’ll be financially.
Whether you earn peanuts or you’re paid decently, it’s always a good idea to stick to a budget. A workable budget allows you to decide what to buy and what not, thus preventing you from overspending or needing to use a credit card. You’ll find it easy to work towards your goal, whether it’s a new car, a condo, or any other investment idea.
9. Save for Retirement
Although many individuals in their 20s have access to company-sponsored retirement plans, only a few participate in them. To them, retirement plans are for old age and don’t seem necessary because it’s decades away.
The extended runway to retirement is a good reason to start saving for it today. If you save with a bank that allows for compounding interest, the interest on your savings can add up quickly.
Employer-sponsored retirement plans are an amazing incentive to make tax-deferred savings towards your retirement. While you can contribute what you can, it’s always a good idea to contribute between 10% to 20% towards your retirement savings.
Be Smart With Money in Your 20s
With so many needs and wants competing for your money, determining how to handle your finances responsibly can be challenging. Plus, it takes time and a lot of work to build a nest of wealth.
To help simplify things a little bit, read this list of habits to be confident that you’re managing your wealth responsibly. You can use the money in your 20s to help build a better financial future.
For more tips and advice, check out our blog.