Financial Priorities for Early 20-Somethings
Being a young adult in your early 20s is an exciting chapter likely filled with elements of change and added responsibility. Going from college to the working world, and having a steady paycheck, means financial planning should come to the forefront. For 20-somethings to set themselves up for future success, planning should start as early as possible to lay a strong foundation that can keep the individual on solid footing well into the long-term.
Below we lay out three of the most important priorities that young adults should consider to get their financial planning on the right track.
Why is it important to have good credit? A strong credit score can be thought of as a report card in a sense – it shows that you are a responsible person and want to put your best foot forward when it comes to debt repayment. Results of a bad credit score can limit your ability to buy a car or rent an apartment if auto loan companies or property managers think you will not be able to cover the monthly payment in a timely fashion.
To build a good credit score, be sure to make timely payments, don’t default on anything and if you have a credit card, never max it out. Also, avoid revolving credit, which is essentially carrying a balance of debt.
Save now, save often
There are two buckets that young adults should be aiming to save toward. The first “bucket” is a 401(k) or other employer-sponsored retirement plan. Early in your career, establish this fund and get in the habit of saving to this. Ideally, you should contribute as much as you can to this account, or at least enough to obtain the company match (which can be thought of as “free money,” since the company will contribute a percentage of dollars).
The second “bucket” is your emergency fund. Aim to build up three to six months of expenses in this account. Having this account liquid and at the ready can help with unexpected items, like job loss, a big medical bill, etc.
Have a handle on cash flow
About six months after you graduate, you can expect the first student loan bill to come your way. Young adults who are fresh to the career force should be “ready” in a sense to have a good handle on their expenses, especially when this new monthly payment comes. Create a monthly budget and understand what is coming in, and out of your account. Having a budget will also help to delineate what is a “want” versus a “need” early on, which can help keep you on a good financial track.