When you’re in your 20s, not thinking about the future is easy. But while spending money fresh out of college may not break your financial future, these years can certainly put you way ahead of the pack if you navigate them properly. Planning early can set you up for success by the time you get to age 40. With that in mind, here are six money moves you can make in your 20s to help secure your financial future.
Pay Off Student Loans as Soon as Possible
Easier said than done, we know. But paying off your student loans early can save you tens of thousands in interest payments. This is a great way to quickly get out from under that burden and start focusing on your career and financial goals instead. Be sure to include your monthly student loan payments in your budget.
Start Saving for Retirement
Set up automatic deposits from your paycheck to a company 401K account. If your company offers a 401K match, the minimum you should contribute is enough to get the entire match. Don’t leave free money on the table.
If your company doesn’t have a 401K plan, open a Roth IRA. If you’re under a certain income level ($150,000 if you’re single), you can contribute up to $7,000 per year in a Roth IRA. With a Roth IRA, your post-tax money grows tax free until retirement. That means when you hit retirement age, you can start withdrawing money and won’t have to pay capital gains taxes on it. The only drawback of a Roth IRA is that you can’t write off contributions when you file your taxes.
If you happen to make over $150,000 per year and your company doesn’t offer a 401K, consider opening a traditional IRA. This will help you save for retirement and reduce your yearly taxes.
Open an Investment Account
Start investing in a non-retirement account. If you’re interested in retiring early, don’t focus completely on just a 401K or an IRA. While those are great, they are meant to help you when you hit a typical retirement age. As little as $100 per month invested in an ETF (Exchange-Traded Fund) can set you up for more comfortable financial future.
Avoid Racking Up Credit Card Debt
Bad debt is the reason so many Americans are living paycheck to paycheck. Whether they are overpaying for a new car or they can’t stop spending money online, debt will kill your ability to reach financial freedom.
When you’re just starting out in your 20s, it feels great to make more money than you ever have in your life. However, just because you can make payments every month without any problems now, doesn’t mean you’ll be able to if your income takes an unexpected drop. Use your credit card responsibly — and get rid of it if you can’t.
Focus on Career and Salary Growth
The more you earn in your job, the better off you’ll be financially. And the more you earn, the more you’ll be able to save and invest for the future. If financial wealth is important to you, put your energy into building a career in an industry where you can become a high earner.
Create a Budget To Avoid Lifestyle Inflation
As you begin to earn more money, you need to avoid lifestyle inflation. It’s OK to indulge a little more, but if you’re making $100,000 and spending $90,000, you’re no better off financially than if you were making $50,000 per year and spending $40,000.
The bottom line: Live below your means, but don’t cut yourself off completely from luxuries. You should still be able to enjoy small pleasures during your life.
How can you do this? One strategy is to follow the 50/30/20 rule.
Interested in more money advice?
We’ve got plenty. Start with Stop Falling for These 10 Lies About Money, then give 9 Ways To Create Passive Income With No Money a read. If you’re already thinking about retirement, be sure to check out 9 Money Mistakes That Could Wreck Your Retirement Plan.
The post 6 Smart Money Moves To Make Before You Turn 30 appeared first on Wealth Gang.
