Updated: 09 July 2020
Here’s how to stay out of financial trouble and start building wealth in your twenties:
Could you get your hands on $1,000 in 48 hours?
A good game plan involves both clever offensive and defensive moves, and ensuring you have savings is a defensive move. Since you don’t know what could go wrong in your life, you want to be prepared to handle any bumps along the road. To safeguard yourself, have $1,000 of spare cash sitting in your bank account. Why $1000? It is about a one night stay at a hotel, a day’s car rental, three meals, and a round-trip domestic flight ticket, all at moderate price range.
Do you have three to six months of expenses in your bank account?
This question builds on move #1 - the money here is typically called an emergency fund. You never know when you might lose a job or have a serious medical condition. Ensuring you have enough in the bank to cover a few months of expenses another defensive move, but it is very important.
Are student loan payments dragging you down?
The sooner you work hard to pay off student loans, the sooner you can begin building for the future.
Do you have any credit card debt or other non-secure debt?
You can’t run until you cut off whatever is weighing you down. We all know that trying to get financially healthy with credit card debt is tough. That’s because the math of credit card interest works against you. Thus, your next step is to pay off your credit card debt and other high-interest debt that you have.
Do you have a car payment?
A car payment is another thing that holds people back. Once you’ve taken care of credit card debt, you should have some extra dollars available to help you take care of that nasty car payment. What’s wrong with a car payment? It sucks up way too much of your income. Get rid of it.
Do you know what those acronyms and numbers on the employer’s benefits plan mean?
Start taking advantage of tax-sheltered retirement accounts. IRAs and 401(k) plans are designed to encourage people to save for their future by sheltering your assets in those accounts from taxes. This tax-free growth compounds incredibly over the decades you will have until retirement, so start now. Also make sure you take full advantage of any employer 401(k) match programs — that’s free money!