Your 20s and 30s are exciting years, and, for most, they are the time to take some risks, explore different career opportunities, and even make extravagant purchases.
But it is during this time that you’ll have the chance to lay the foundations of personal wealth and financial independence – and the choices you’ll make today can create a positive ripple throughout your life.
From learning how to live within your means to building healthy financial habits, this is the time to take charge of your financial future.
Here’s how!
Pay Off Bad Debt – and Stay Out of It!
If today, over 34% of Americans feel financially insecure, it is also due to bad debt.
According to recent research, in 2020, members of Generation Z and Millennials had an average debt of $16,043 and $87,448, respectively.
But not all debt is bad – and taking out personal loans or mortgages can even help you build a better credit history.
However, when it comes down to building the foundations of long-term personal wealth, it is important to understand that some debt – like credit card and consumer debt – won’t improve your financial situation.
While covering expenses with your credit card might help you make ends meet, make sure to have a robust repayment strategy in place and only use this resource for purchases you can afford.
Establish Healthy Budgeting and Saving Habits
Especially during your 20s, it’s vital to learn how to live within your means and establish healthy budgeting habits.
From tracking the money coming in and going out of your account, to learning the basics of frugal living, and reviewing your expenses on a monthly basis, being aware of your financial habits can help you become more aware of how you save and spend.
This is also the time to find the right budgeting strategy for your family and lifestyle.
For example, you might opt for incremental budgeting, such as the 50/30/20 approach, or find stability in the structure of zero-based budgeting (ZBB).
Grow Your Emergency Fund and Cover Your Loved Ones Financially
It might be true that the best time to start an emergency fund was yesterday – but it is also true that the second-best time is today!
There are multiple ways to make sure that both you and your loved ones are covered financially.
These include setting up and growing your emergency fund and investing in health and life insurance.
If you are looking for a benchmark or a goal to set, according to experts, during your 20s and 30s, you should have between $9,825 and $28,566 saved – or enough to cover 3-6 months’ worth of expenses.
Check Whether You’d Be Better Off Refinancing Your Student Loan
Student loans are a powerful tool that can give you access to education and open the doors to endless career opportunities.
However, with an average student loan debt of $37,113 to $40,904, many young users struggle to regain their financial balance in their 20s and 30s.
Alongside having a robust debt-repayment strategy, refinancing your student loan can help you take advantage of lower interest rates, better terms, and lower monthly payments – esèpecially if you have been building a solid credit history over the past years!
Before diving into this possibility, make sure to use a student loan refinance calculator to know exactly what to expect from this financial move.
Start a Retirement Account in Your 20s and Grow It in Your 30s
We all look at retirement as something so far in the future.
But the lifestyle you’ll be able to enjoy then is built today!
While you might feel that your retirement contributions each month are too small to make a difference, there are some factors to keep in mind:
- Compound interest can exponentially grow your savings if you start building your fund early on
- Your employer might offer a 401(k) match, which allows you to double your contributions and save up free money!
- An independent retirement account (IRA), such as Roth IRA, Spousal IRA, and SEP IRA, can help you build your retirement savings in a tax-efficient way
Earn, Save, and Invest to Grow Your Net Worth
Your net worth doesn’t only relate to how much you earn, but it also takes into consideration your savings, assets, and capital gains.
At the same time, working towards a high-paying career and building job stability can help you earn more and exponentially grow your savings, while also securing better rates on your loans.
Finding a balance between what you spend, earn, and invest can help you build long-term financial wealth.