You want to be financially responsible, but all the advice you can find on finances seems to be aimed at those with assets like retirement funds, houses, and stock. The financial advice aimed at your age group is often vaguely condescending, suggesting that maybe if you drank less coffee, you’d already be on your way to having your first million. This article will serve you more than just ways to reduce tax season stress.
Instead, the goal is to increase overall, sustainable financial fitness. While avoiding small expenditures that add up over time isn’t terrible advice, it can be helpful to get started on your new, financially responsible life with some guidelines that understand where you are and what you need.
The Truth About Credit Cards
There’s a standard line about credit cards that you absolutely shouldn’t use, but this is only sort of true. You can use credit cards as long as you pay them off monthly. You also shouldn’t have a lot of them because it can affect your credit score if it looks like you could take on a lot of debt relative to your income.
However, credit cards can be helpful for points, travel miles, and cash back perks. If there’s something you need to pay for and you currently do not have the cash, a personal loan is a better option than credit cards. You can usually find out quickly whether you are eligible for a personal loan, and most of them have better interest rates than credit cards.
In Case of Emergencies
In your 20s, it’s common to fall back on your family if you have a financial emergency. The problem with this is that not everyone has a family who can help or wants the help of their family. While it’s good to have a family as a backup if you need them, a more independent and responsible approach to preparing for emergencies is to start building an emergency fund for yourself.
It would help if you kept this in a savings account or another account that allows you to get to it instantly. Conventional wisdom says you should have enough in it to cover three, six, or even a year of expenses. If you’re young, in relatively good health, and don’t have dependents or many financial obligations, somewhere in the three-to-six-month range is probably safe for you to aim for, but it could take years to save up even this much in some cases. To start with, set a goal of just $500.
What About Retirement?
You might think much don’t have a lot of money as it is, retirement seems like a million years away, and the world is uncertain, so why put money away in a retirement fund? The good news is that saving even a little money for retirement regularly throughout your 20s can make a big difference because the value of that money is likely to increase exponentially. It might seem like a sacrifice, but you won’t have to hit retirement age to be glad you did it. Even in your 30s and 40s, you’ll be thankful that you started a nest egg when you were young.