Every decade of your life brings on new experiences and challenges. The more detailed your financial planning is during these changes, the better prepared you will be for whatever may come. Everyday this week, we will posting a list of tasks you can work on each decade to prepare for the future. We'll start with your 20's.
The easiest way to do this is by getting a credit card. A history of on time, consistent payments will greatly improve your credit score, making you a much more desirable candidate to future lenders.
START EMERGENCY FUND
The minimum goal for this fund should be at least three month’s salary to cover expenses, with six months being the ideal amount. Many people believe they can’t afford to save but this isn’t true. A good place to start is by differentiating between needs and wants. Before buying something, a good question to ask yourself is ‘if I didn’t have a job, could I afford to buy this?’ When money is tight, you prioritize your needs automatically. Do you buy that new smartphone or pay your electricity bill? This money should be put somewhere you can’t easily access it, to avoid the temptation of spending it.
MAKE DEBT PLAN
The first step to getting out of debt is to make a plan. Blinding making minimum payments each month may help you avoid fees but it’s not an effective way to get rid of debt. First, you need to find out exactly how much you owe. Start by attaining a copy of your credit report. This can be found on annualcreditreport.com. Write down each creditor, amount owed, monthly payment, and interest rate. The best way to start is the debt with the highest interest rate.
START RETIREMENT FUND
It’s never too early when it comes to saving for retirement. For example, if you start saving $2,000 a year at age 25, with 8% annual growth, you’ll have around $560,000 by age 65. If you don’t start saving until age 35 using the same factors, you’ll end with about $245,000. That’s less than half with just a ten year delay. Here are some other things you can do in your 20's to help you plan for retirement.