I’m a firm believer that your 20s is the most important decade of your life financially. This was a driving reason on why I chose to start my blog 20smoney.com. This is a crucial decade; unfortunately, it is often the most abused decade as well. Rather than saving, investing, and building a career, many 20-somethings instead use these years to rack up debt and enjoy a lifestyle beyond their means. While there are many things that 20-somethings should focus on, here is a list of five that can get you started:
The most important financial habit that a young person can learn is to spend less money than he or she earns. This is the most fundamental habit of one’s financial life. Without mastering this concept, little else is possible.
In order to master this principle quickly, make sure your fixed expenses such as rent are not too high. Then, begin to find ways to keep your spending (e.g., entertainment, dinner out, clothes, etc.) in check. Use online budgeting software such as Mint.com to track your spending effectively. Make whatever adjustments are necessary in order to make sure that you spend less than you earn every single month.
Like the previous principle, try to make regular saving a habit. The amount of money you put away is less important than the consistency that you save. Setup your savings account to auto transfer money each month from your checking account into savings — even if it’s only $10 a month. The habit you establish is the important part!
As you continue to tweak your budget and lifestyle, and hopefully earn more money over the years, try to increase the amount that you save each month. Rather than letting your lifestyle inflate as the years go by, try increasing your saving!
After you mastered the art of regular saving, it’s time to become a regular investor. The most common method is through 401(k) participation. If you have access to such a plan, it’s a great option for you because you can automatically deduct money from your paychecks. If you don’t, then you have to manually move money from your savings to retirement accounts such as an IRA.
A great way to get started in the stock market is through ETFs (Exchange Traded Funds) that track the overall market. An example of this is the SPY ETF, which tracks the S&P 500. This type of diversified investment vehicles gives you a broad market exposure, and you don’t have to worry about researching individual companies.
Focusing now more towards your career, you need to continue to develop your skill set. I’m a firm believer that most people learn more in their first few years in the working world than they do in four years of college. Use the opportunities at work to develop skills that will benefit you both today and years from now. Take on unique challenges so that you can gain the experience and the skills they offer. The more experience and range of skills that you develop over time, the more opportunities will be available for you as you progress through your career.
Just as important as your skills, the relationships that you develop will also increase your opportunities exponentially. Networking, especially early in your career can be the difference between a fast track career and a stagnant career. Get to know people in your company, in your industry, and even in other industries. You really never know when a certain relationship will pay off (or if ever). You may find yourself looking to relocate or switch industries in a few years, and these relationships will be excellent resources to help you reach your objective.
So there you have it, the five things to focus on in your 20s. If you have other ideas, please share with the rest of us. Thanks!