1. Gain financial literacy
Most people start their careers in their 20s and often do not quite understand finance despite earning quite well. It’s vital to make a conscious effort to learn the basics of finance and managing money. An important starting point is to understand the nitty-gritty of your work contract, the structure of your salary, and the taxes being paid. Studying investment opportunities and options to save money is a great way to gain financial literacy.
2. Start Budgeting
Irrespective of how much you earn, it is important to cultivate the habit of budgeting your expenses. Always keep track of your earnings and all your expenses. Make a note of the regular expenses and start budgeting for those at the very start of the month. The common practice is to categorize your spending ranging from housing, food, essentials, entertainment, saving, and more. Once you start the practice of budgeting, you will already have a fair idea of what portion of your income is expendable for the month.
3. Start Saving
The urge to spend all your income is pretty strong in your 20s, and even more so when you just start earning; But, there’s no better time to start saving money and creating a buffer for a rainy day. Savings come in many forms including as a form of investment, creating a contingency fund, and even making contributions to your retirement savings account.
4. Set Personal Goals
The biggest motivation to plan your finances is to set personal goals. We all have personal goals that can range from a dream home, car, vacation, and more and there’s no better way to achieve that than through financial planning. Using personal goals to save will also help cultivate a saving habit that could stand you in good stead in the long run. The payoff for the plan is also a huge motivation to save.
5. Only Borrow What Is Needed
While this might seem like rather straightforward advice, it is important to cover as much as you can in a downpayment and apply the rest for a loan rather than the other way around. The easy option is to always avail the maximum loan and reduce the downpayment but it could saddle you with debt. Always work to make your debts as small as possible.
6. Get insured
Life is unpredictable and it is important to account for that variance. By ensuring you are insured on various fronts including health, home, and life insurance among others, you can always know that there’s a safety net out for you. It is also important to ensure not just you but also your loved ones are also covered. When experiencing an emergency, you’ll only have to shell out to cover the deductibles rather than have an unforeseen contingency derail your finances.
7. Build Credit
You might be just starting out on your career but it’s imperative to always keep track of your credit score. There’s no bigger tool to help you move up the financial ladder than to maintain a higher credit score. If you don’t have an existing credit score, you can start building one by taking out a credit-builder loan or applying for a credit card. A good score can help you take loans at low-interest rates which can enable you to buy your dream, car and more. Even for those who might only have plans to rent, it’s vital to maintain a good credit score as landlords are also using credit checks to assess potential tenants.
