The 20s are the time for growth and hence crucial time for your financial growth too. When your priorities are making new friends, finding a job, and being self-dependent, you can easily slip up. To err is human, but you cannot easily evade the ramifications of financial mistakes.
If you want to live the golden years of your life without monetary worries, you should start financial planning in your 20s. The early you start, the better it is. Here is how you can begin financial planning in your early 20s.
Strengthen your decision-making power
You will have to stop being impulsive to hone your financial decision-making. Just because you want to have something, it does not mean that you will throw money at it. You should evaluate whether you need it or if this expenditure will give any value to you.
If the answer is no, you should stash away money for any other good reasons. A rule of thumb says that you should think before making any purchase. Try to decide if it is going to bring in value or it is worthwhile to spend money like this. Do not buy anything if you want to emulate your neighbors and friends.
Secure income for a rainy day
When you are in your 20s, you have many reasons to spend money, but you do not have a reason to save money. Many of you fail to build savings even though you give it a try. Well, whether or not it seems complicated, you should try to set aside some money for a rainy day.
Emergencies can crop up anytime, and they will not wait for you to have funds arranged. Create an emergency fund that you can dip into when you lose your job or need a car repair or when you need to fund medical bills.
Although you can borrow money from lenders in Ireland, it may not allow you to borrow a large amount of money. If you have an emergency cushion, you will not need to chase lenders to fund unforeseen expenses, and if you still need it, the borrowing amount will be very small.
Create a budget
Budgeting is crucial to managing your money. It can help you track your expenses. You cannot improve your financial condition if you do not know where and how much your money is going. A budget should be flexible so you can priorities during the different stages of your life.
If you want to save money for a rainy day, you will have to create a budget. You should make two types of budget: 80/20 and 50/30/20. The budget you will choose depends on your income and expenses.
80/20 budget is a simple budget that means you will save 20% of your income and then spend the rest of the money in whatever way you like. This is generally a good way of budget when you do not own a debt.
50/30/20 budget gives you a more specific way of spending. You are to divide your money into three categories: needs, wants and savings. Needs include those expenses that are a must, for instance, food, utility bills, and debt payments.
Wants include discretionary expenses. According to this budget, you will spend half of your income on necessary expenses and 30% of it on unessential expenses and the rest money you will set aside for a rainy day.
If you are making a 50/30/20 budget, you will have to track your expenses to ensure that your discretionary expenses are not consuming more money than the set limit.
Pay off debt
First off, you should try to learn to meet all of your expenses from the money you earn. If you need money out of nowhere, you can borrow money. Having an emergency cushion assures that you do not need to take out a loan every time an emergency crops.
As far as it is about your existing debt, you should pay them off before starting your financial planning. You know it very well that you will need to take out a mortgage or an auto loan down the road, a rule of thumb says that you should have settled all your current debts by the time you put in an application for such big loans.
This will not only increase your chances of borrowing money at affordable interest rates, but you will manage to pay off the debt quickly. Whether it is urgent doorstep loans or credit card bills, make sure that you have a strategy to settle all of your debts.
When you have multiple debts, you can use either the debt snowball or debt avalanche method. While the debt snowball method refers to payment in the smallest to the largest amount, the debt avalanche method allows you to pay in high interest to the low-interest debt.
Start investing your money
Many of you think it is too early to invest money in your 20s, but there is never early in making most of your finances. Investment is the key to building wealth.
You may not have enough knowledge about the investment world. Still, you can hire an investment expert who can suggest you the most relevant assets after assessing your financial condition and investment goals.
It does not make sense to invest money when you do not have a long-term financial plan, a healthy emergency cushion, a good income source, and well-researched assets before you invest in them.
Look for a job with high pay
It can be not very easy for you to make ends meet with little income. Low income is one of the significant reasons for taking out loan one after another, and hence you fall into an endless circle of debt.
Try to look for a job that gives you good pay. It must be sufficient to meet all your expenses. Try to negotiate with your employer. Do some industry research and find out what qualification you should have to get high pay.
The bottom line is it is not too early to start financial planning in your 20s. Take actions with the checklist mentioned above, and have a successful journey to financial health.
Description: If you want to start financial planning, you should do it as soon as possible. This blog discusses how you can do it in your 20s.