Focusing on these tasks now will allow you to achieve financial independence down the line.
Financially speaking, life will not always seem hopeless. Starting to manage your finances for the first time may seem daunting: daily expenses, housing and health care costs as well as heavy obligations and long-term goals such as retirement. But do not fear: you won’t remain financially lost forever!
Start planning for your financial future now – the earlier the better! According to John Deyeso, an NYC financial advisor who works with many younger clients (he himself is 37). Building habits from early in your 20s onward is critical to long-term success, says Deyeso.
Here are 10 steps that you should take during your 20s to take control of your finances:
- Foster A Marketable Expertise
Before worrying about how to invest your funds, the first step should be accumulating some.
Think beyond a task when considering your career path. Let’s be realistic here – your first job may not be what you hoped it would be, nor will it likely be the last, yet make every attempt at making the best out of it. My first employment involved fetching records for colleagues and doing data entry – certainly nothing exciting but still invaluable experience gained during that period – sometimes “I never want to repeat this,” yet nonetheless valuable in its own way as I also learned useful skills such as Excel and acceptable office phone and email behavior that have continued into my current career path!
Notably, I recognized my skill of writing as a valued one and sought opportunities to leverage it. After discussing this with my supervisors and getting their approval for future endeavors in this arena, I ended up penning public statements, editing an online segment and any other writing-related tasks at our small company. Outside the office I took on various freelance assignments-some for free-to practice my craft and build my organization.
“Take risks while you are younger,” advises Erin Baehr, a financial planner in Stroudsburg, Pa. and author of Growing Up and Saving Up. You might take one job over another only to discover it doesn’t pan out later – however when younger, that can translate to greater returns later on!
- Establish A Financial Plan.
Once your money comes rolling in, it’s essential that you create a spending plan in order to allocate it effectively. Without one, the risk is too great of overspending on discretionary items while failing to save for important purchases such as cars and houses.
“It is essential that individuals distinguish between their needs, wants and aspirations when making financial decisions,” advises Lauren Locker of Little Falls, N.J.-based Lauren Locker Financial Planning who also teaches an undergraduate personal finance course at William Paterson University. Before setting out your financial plan, write out all your daily expenses (for instance commuting and food charges) as well as regular scheduled payments (lease, utilities or obligations). By knowing where all your cash is going, it will become much simpler for you to identify ways of cutting expenses – for instance when I initially created my financial plan, I was stunned to realize how much was being spent on take-out food; by becoming aware of that expense I managed it by ordering less often and ordering fewer takeout items altogether.
- Get Insured.
Do It Yourself. Mayhem can strike anywhere, and as an adult you are responsible for protecting yourself and all of your possessions from it. In case something catastrophic does happen to you – such as an accidental shooting in your apartment building – having insurance could save you from spending thousands all at once.
- Make A Debt-Repayment Plan..
Debt is an unavoidable part of adult life, yet allowing it to accumulate can have serious repercussions for years – in terms of increased interest payments and lower credit scores.
- Build An Emergency Fund.
Simply having insurance won’t cover all your needs; for added peace of mind and to help prepare for unexpected events, liquid savings should also be part of your portfolio.
Some call it a rainy day fund; I call mine my “polar vortex reserve.” Last winter, when our heat siphon stopped working properly and required replacement, our rainy day fund saved us from going into debt or asking our parents for funds (a frightening thought!).