This is the first of a five part series on what to do in your 20’s, 30’s, 40’s, 50’s, and 60’s in terms of saving money, organizing your finances, and keeping the eye on the prize (which is retirement, for many).
For many Generation Y individuals, the 20’s are a time of experimentation, of exploration, and of education. There tends to be great variance between the early twenties and the late twenties in terms of responsibility.
The good thing about being in your 20’s is that you have relatively few responsibilities, you have your youth, and you have the potential to save a lot of money.
The bad thing about being in your 20’s is that because it is a time of experimentation, exploration, and education, much of your 20’s can involve a lot of wasted money spent on clubbing, partying, and drinking when you that money could be better spent elsewhere, like paying off your student loan or starting to save for a down payment on a home, or to pay off a wedding.
Here are some tips on how to get a head start on your personal finance in your 20’s.
Make a Budget
As a starving student, you likely learned how to create a budget. Start by thinking about the staples (budget items that do not fluctuate from month to month) like rent, utilities, cell phone bill, and other monthly expenses. Make sure you incorporate savings in your budget.
For the other stuff like “wants” such as clothing, dining out, and entertainment, try to make sure you don’t go over budget. If you want something like new boots, use that money allocated to your budget (e.g. $50 a month) and save it up over three months to buy the $150 boots you want. Being forced to have delayed gratification has many advantages, like forcing you to re-evaluate whether you really need that item in addition to making sure you don’t break your budget consistently (and then feel bad about it, then proceed to break your budget again because of shopping therapy- a vicious cycle).
Track Where Your Money is Going
Write down every single purchase. That includes the $3.89 coffees you have on a daily basis, the $3.60 butter tart you had with coffee, and the $8.99 salad you had for lunch. And the $150 boots you bought.
Doing this exercise is tedious, but reviewing it and adding up the purchases at the end of the month will surprise you and make you realize where your money is really going.
After you realize where your money is going, and after you allocate money in your budget, you should easily by able to start saving. This means not living pay cheque to pay cheque. According to a recent survey reported by the Financial Post fewer Canadians are living pay cheque to pay cheque compared to last year. Despite the good news, 47% of Canadians are still living pay cheque to pay cheque. If you sit down to re-evaluate your spending, you will realize that you don’t need to be living pay cheque to pay cheque. When you start to save and invest in your twenties, time is on your side. Many sources have indicated that a person who starts saving LESS earlier, comes out on top compared to someone who saved MORE later in life. One easy way to do this is to reinvest/save your tax return instead of treating yourself and spending it.
Start Making Sacrifices
As a 20-something, it can be hard to think about the future. I get it- you’re too busy having fun, exploring the world. However, if you start thinking about the future expenses in your late 20’s or 30’s, the reality check will be that there is going to be inevitable lifestyle inflation (wedding, children, mortgage or larger home to rent) coming your way. It will be harder to save then. Trust me. Time is on your side right now, so start investing and saving.
Save for a Rainy Day
As 20-somethings, the idea of a rainy day or emergency fund is probably the last thing on your mind. However, without a raining day fund, you’ll likely draw upon credit for emergencies. What if your pet gets sick and needs veterinary attention? What if your car breaks down? What if your computer breaks down? Once you get stuck with a credit card balance or a personal loan balance and get into consumer debt, it can be very difficult to pay it off. In a survey by TransUnion, consumer debt has risen to its highest in eight years- household debt is at an all time high of 150% to after-tax income.
Bargainmoosers, any other words of wisdom for other Bargainmoosers in their 20’s?
(photo credit: Tax Credits)