Money Management in Your 20s: 4 Things to Know
Unfortunately, many young adults make monetary choices they later regret. Here are 4 important things to keep in mind:
1. Money Can't Buy Happiness
When you are young, you may think if you save and accumulate enough wealth, you will not have any problems. Money is an important part of life, but if you measure your worth by it, you are likely to find yourself unhappy.
This can also be true of material possessions. If you are lucky enough to have disposable income when you are young, it can be tempting to spend it on a new pair of shoes or the latest electronic craze. But the rush of excitement when you see something you want is only fleeting, and you may regret your decision sooner than you think.
The need to keep up with peers and acquire material items outside your budget is, unfortunately, a quick way to get into debt that can be hard to get out from under.
2. It's Easier to Borrow, Harder to Pay Back
Borrowing is a necessity most adults will experience more than once. While you should be cautious of when and where you borrow, getting a small loan and repaying it on time is an important part of establishing strong credit.
It is, however, important to exercise caution when borrowing money to make sure you don't become mired in debt.
Many young adults already have student loan debt before they even begin their careers. While a student, you will be bombarded with people offering to loan you money with a long repayment period.
The problem is, borrowing large sums can impact your ability to borrow in the future, as well as meet your financial needs. When trying to come up with tuition, first look for grant and scholarship money. If you have to borrow, only borrow what you will need to cover basic expenses.
3. Budgeting is Critical to Success
A budget is a plan for your income and expenses to make sure you will have enough every month. Make sure all of your basics are accounted for in your budget. It may seem daunting at first to keep to a strict budget, but it is a great tool to prevent overspending. A budget keeps you informed of where all your money is going.
You will also want to include clothing and groceries as these can add up quickly. Once you have spread your money out over all the necessities you can think of, add what you will be contributing to your savings and emergency fund each month.
4. Emergencies Happen: Be Prepared
Your first instinct when you get money is to either pay off debt or invest it. While it is vital to put money away for retirement early and also keep debt under control, it is always important to have cash on hand.
There are are a number of financial obligations that still do not allow credit payments, such as rent and mortgage, so not having cash on hand when life throws you a curve ball can have devastating consequences. Your emergency fund should consist of approximately three to six months of living expenses. Always replenish money you take out as soon as you are able.
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This content is developed from sources believed to be providing accurate information, and provided by Kelly Financial Planning. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.