Planning for their financial futures may not be a priority for twenty and thirtysomethings. After all, those in their 20s are experiencing new adulthood and all the experimentation and growing pains that involves. Those in their 30s may be focused on marriage or keeping up with the cost of a starter home and raising young children. However, some forethought now can pay off five or 10 years down the line when financing major life goals and 30 or 40 years from now in retirement.
Managing your finances can seem daunting, but it’s an essential skill that you need to develop as early as possible. The earlier you start, the better off you’ll be in the long run. Whether you’re in your 20s or 30s, here’s what you need to know to manage your finances effectively.
Create a Budget
Creating a budget is the first step to managing your finances. A budget will help you keep track of your expenses and prevent you from overspending. Start by listing all your sources of income and all your expenses, including rent/mortgage, utilities, groceries, transportation, entertainment, etc. Then, allocate a fixed amount of money to each category every month. Stick to your budget as much as possible and adjust it if necessary.
Build an Emergency Fund
An emergency fund is a safety net that can help you cover unexpected expenses like car repairs or medical bills. Experts recommend having at least three to six months’ worth of living expenses saved up. Start small by setting aside a certain amount of money every month until you reach your goal.
Pay off Debt
Paying off debt should be a top priority. It’s essential to pay off high-interest debt like credit card balances as soon as possible. Make a plan to pay off your debt by prioritizing the highest interest rate balances first. Consider consolidating your debt into one loan to lower your interest rates and make it easier to manage.
Invest for the Future
Investing can seem intimidating, but it’s an essential step to building wealth. Start by investing in a 401(k), 403(b) or an Individual Retirement Account (IRA). These accounts offer tax benefits and compound interest, which means your money grows over time. Take advantage of employer matching contributions to your 401(k)/403(b) if they’re available to you.
Save for Major Life Goals
Whether you’re planning to buy a house, start a business, or go back to school, it’s essential to save for major life goals. Create a separate savings account for each goal and contribute to it regularly. Set a specific target amount and a deadline for achieving it. Automating your savings can be a great way to help you achieve these goals.
Be Mindful of Your Spending
It’s easy to fall into the trap of overspending, especially with credit cards. Be mindful of your spending and avoid unnecessary purchases. Living within your means is crucial to managing your finances effectively. Always ask yourself whether you really need something before making a purchase. Consider tracking your expenses using a budgeting app or a spreadsheet to help you stay on track.
Monitor Your Credit Score
Your credit score is an essential part of managing your finances. It affects your ability to get a loan or a credit card and can even impact your job prospects. Make sure to monitor your credit score regularly and take steps to improve it if necessary. Pay your bills on time, keep your credit card balances low, and avoid opening too many new accounts at once.
Plan for Retirement
Retirement may seem far off, but it’s never too early to start planning for it. The earlier you start saving for retirement, the more time your money has to grow.
Don’t Be Afraid to Ask for Help
Managing your finances in your 20s and 30s can be overwhelming, especially if you’re dealing with debt or financial hardship. Don’t be afraid to ask for help if you need it. Consider talking to a financial advisor, a credit counselor, or a debt management professional. If you’re an MMBB member, reach out to MMBB and we will put you in touch with one of our Financial Planning Specialists to help you develop a plan that works for you.
Remember, it’s never too early to start managing your finances effectively, and the earlier you start, the more time you have to build wealth and achieve your financial goals.