Getting your first real paycheck feels pretty good. You finally have money to spend on things you’ve been looking forward to.
Then come the bills. Rent, groceries, student loans, car payments. And somehow, you’re supposed to be putting money away for retirement too.
- How much should you save?
- Is it okay to use a credit card?
- Should you pay off debt before you start investing?
These are decisions most people start making long before anyone teaches them how money actually works.
In The JOY of Finance, Jorrell Bland, CFP® Wealth Advisor at Mitlin Financial, Inc.®, shares financial lessons worth knowing early, so you can make better decisions with your money and still enjoy the things you love.
Why Does Financial Literacy Matter in Your 20s?
Your 20s come with a lot of financial firsts. You might be renting your first apartment, buying a car, paying off student loans or signing up for your first 401(k).
The decisions you make now can affect your finances for years.
A higher interest rate on a car loan could cost you thousands. Missing student loan payments can hurt your credit. And waiting to invest means giving your money less time to potentially grow.
Understanding how these things work can save you money and give you more choices about how to spend it.
How Can You Build Good Credit and Avoid Expensive Debt?
Your credit score can affect the interest rate you’re offered on a loan and whether you’re approved for certain types of credit. Landlords may also review your credit history when you apply for an apartment.
Paying bills on time, keeping credit card balances manageable and checking your credit reports regularly can help you build a positive credit history.
And here’s something worth knowing: You don’t need to carry a credit card balance to build good credit.
Paying your statement balance in full each month can generally help you avoid purchase interest while establishing a history of responsible payments.
The same attention to detail matters when borrowing money. Before financing a car, compare interest rates and loan terms from different lenders. A lower monthly payment might look attractive, but extending the loan could mean paying considerably more overall.
How Can You Budget and Still enJOY Your Life?
A budget shouldn’t mean giving up everything you love.
- Want to take a vacation?
- Go to a Knicks game?
- Finally buy the car you’ve been saving for?
Make room for it.
Think of budgeting as planning for JOY. You want to know what’s available to spend after covering your bills and putting money toward your future.
The 50/30/20 budgeting rule is one place to start. It suggests putting 50% of your after-tax income toward needs, 30% toward wants and 20% toward savings and financial goals.
Those percentages won’t work for everyone, so adjust them to fit your income and expenses.
And make sure some of your savings are set aside for emergencies. Having money available for an unexpected car repair or a period without work can help you avoid taking on debt when something goes wrong.
Keep that money separate from what you’re saving for vacations and other things you enjoy.
Why Should You Start Investing in Your 20s?
You may have decades until retirement, which gives your investments something valuable: time.
Through compound growth, the returns your investments earn have the potential to generate additional returns. Starting earlier gives that process more time to work, although investment returns aren’t guaranteed.
If your employer offers a 401(k) match, find out how much you need to contribute to receive the full benefit. A Roth IRA may also be worth exploring, depending on your circumstances.
You can start with an amount that fits your budget and increase your contributions as your income grows.
What Other Money Decisions Should Young Adults Pay Attention To?
If you have student loans, know how much you owe, when payments begin and what repayment options are available. If you’re struggling to make payments, contact your loan servicer before falling behind.
It’s also worth reviewing your insurance coverage. Health, disability and renters insurance can help protect you from expenses that could otherwise put a serious dent in your savings.
And use technology to make things easier. Automatic savings transfers can help you save consistently, while financial apps can make it easier to keep track of spending and upcoming bills.
Where Should You Start?
Think about what you’d like to do with your money. Maybe you’re saving for your first home, planning a trip you’ve been looking forward to or trying to get ahead of your student loans.
Now take a look at where your money is going each month. Are there expenses you could cut back on without missing them?
Even small changes can free up money for things you’d rather be doing.
You can enjoy your money today and still prepare for the future. The key is knowing what matters to you and making choices that help you get there.
Make More Room for JOY in Your Financial Future
Your money should help you do more of what makes you happy today while building the future you want.
Schedule your no-obligation conversation with the Mitlin Financial team to see how we can help you enJOY today while planning for your ideal tomorrow.
