When you are in your 20s, you are establishing the habits that will follow you throughout your life. This is especially true for your finances. In short, if you practice good financial habits in your 20s, you will be in a much better place financially in the future.
This is also the life stage when you may be establishing your career, getting married, or preparing to start a family. This makes it even more important to set savings goals for yourself. Read on for the five savings goals you should reach for when you’re in your 20s.
One of the first things you should be saving for is an emergency fund. An emergency fund is an insurance policy for your finances and makes it easier to stick to your budget and not go in debt. For example, you would use your emergency fund to cover an unexpected medical expense or house repair, or even to help cover your living expenses if you were to lose your job.
When you first start budgeting, you may start out with a small emergency fund of $1,000. You should build you your emergency fund over time; first, save enough to cover one month of expenses. Then increase that to cover between three to six months of living expenses.
The amount you save will be determined by the stability of your job, your income, any other debts you may have, and if you are a single or double-income household.
Remember, your emergency fund should be fairly easy to access, so keep it in a liquid investment vehicle or savings account.
Another goal you should work on in your 20s is saving up a down payment for a house. This does not mean that you need to purchase your first home in your 20s. Depending on your job stability and whether or not you want to stay in the city where you are currently working you may not want to buy your first home in your 20s.
Usually, a down payment is 20% of the purchase price of your home, but that can vary. However, the larger the down payment, the lower your mortgage payments can be, and the nicer the house you can afford. You also may want to put down a large down payment to avoid private mortgage insurance.
Remember, if you start saving early, you will be in a better position to buy a house when you are ready.
The key to having enough money for retirement is to start saving early and then continue saving regularly until you retire. You should start saving for retirement as soon as you get your first job. In this case, compounding interest is your friend; the more you save when you’re young, the more that money will grow and the more you will have to enjoy retirement.
You may start by contributing up to your employer’s match until you are out of debt. Then, you may shoot for contributing 15% of your income. You can reach this goal by increasing your contributions each time you get a raise or even just increasing it by 2% annually.
If you want to build wealth, you need to think beyond saving money and begin to invest it. Try to start investing before you hit 30. As mentioned, compounding interest will help your money grow more quickly, and the sooner you start, the better off you’ll be.
You can choose to invest with the help of a financial adviser, who can recommend investment types and help you build an investment portfolio. If you understand the stock market, you may opt to invest yourself through an online brokerage firm.
The key to investing is to diversify across different companies and different types of stocks. It is important to understand the risks associated with each type of investment and to move to more conservative investments as you get older.
Another key habit to establish when you are in your 20s is the habit of saving money. This means that you are always looking for the most affordable option. You shop at the most affordable grocery stores, take advantage of coupons and wait for items to go on sale.
You can also look for ways to reduce your daily expenses, so you have more money to put toward your savings and investing goals. It will also prevent you from running up excessive amounts of debt. Embracing a frugal lifestyle will open doors and allow you to spend more on the things that are the most important to you.
