6 Financial steps to take
Your 20s are such an exciting time. You're developing a career, expanding your social skills, and maybe even meeting a life partner and starting a family. With all that you have going on this decade, it's important not to forget about your finances. The financial steps you take right now will impact you for the rest of your life. Luckily, being financially smart in your 20s is not as tough as it might seem. You can start moving toward your financial goals by making these six big steps.
1. Separate your finances from those of your parents.
Do you have any credit cards with your parents' names on them from when you were in college? Maybe you have a loan that your parents cosigned on, or perhaps your parents are still paying your phone bill. An important step in moving toward your financial goals will be separating your own finances from those of your parents—completely.
Refinance cosigned loans to get your parents' names off of them. Close any joint bank accounts and open your own. Take responsibility for your own bills. This is your financial future, not theirs.
2. Build an emergency fund.
You never know when your car is going to need major repairs or when an accident will result in a surprise medical bill. These emergencies won't rock you financially if you have an emergency fund set up. Experts recommend keeping between three and six months' worth of expenses in an easily accessible account for emergencies. Save a few hundred dollars a month; you'll have a substantial emergency fund before you know it!
3. Start saving for retirement.
Thanks to compounding interest, the money you save for retirement in your 20s will be worth far more than any money you save in your 30s or 40s. You should aim to save at least 10% of your income for retirement. If you can manage to save 15%, that's even better! If your employer matches funds for 401k contributions, start there. Once you max out your 401k, look into opening an IRA.
4. Check and improve your credit score.
Check your credit score about once a year. Also work on building your credit score by paying off bills on time, and by taking on small loans and paying them off. Just putting everyday expenses on your credit card—and then paying off the card each month—can help build your credit quickly. The higher your score, the better rate you'll get when the time comes to buy a car or a home.
5. Buy the right insurance.
Make sure you're protected by a good auto insurance policy, along with a good homeowners or renters insurance policy. Look into life insurance, too—especially if you have a spouse and/or children. Life insurance will make sure your loved ones are cared for financially if anything happens to you, and you can often get a much better rate on life insurance in your 20s than you can get later in life.
6. Start a side hustle for extra earnings.
You'll make faster progress toward your financial goals if you develop a side hustle to bring in some extra cash. This could be anything from freelance writing in your spare time to selling crafts at local craft fairs. Put the extra funds toward your emergency savings or retirement.
Your 20s are the prime time to make substantial progress toward your lifelong financial goals. Save more, spend less, and work on increasing your income. By making one responsible decision at a time, you'll make steady, forward progress.