Many young adults today are struggling to become financially independent. Gone are the days when young people, especially millennials, relied on their parents for money. However, only 24% of Americans are financially self-reliant by the age of 22, compared to 32% four decades ago.
How can you secure your financial future in your twenties and set yourself on the path to financial freedom? Here’s how:
1. Learn the fundamentals of finance
It turns out that only 57% of Americans are financially literate and young adults score less on financial literacy tests compared to baby boomers. That’s why you need to educate yourself about finance. You may read a few books on finance or watch some YouTube videos on this topic.
Learning the fundamentals of personal finance will be enough to help you secure your financial future. You can also consult a financial expert about your budgetary and planning issues.
2. Save some money for your retirement
Typically, Gen Zers and millennials believe they need to save $1.4 to $1.8 million to retire comfortably. Your twenties are the right age to start putting together enough money for retirement. However, it is not as simple as you’d imagine; planning for your retirement is a complicated, continuous journey that should be embarked on with caution. Consider optimizing your retirement planning timeline right now by understanding different rules, investment options, and other important issues.
3. Set short-term goals for your future
Setting long-term financial goals can be damaging to your well-being. The future is uncertain and many things can disrupt your long-term goals, such as a pandemic, inflation, recession, or other events (like a war). Studies also show that millennials who strive to make “serious money” before they turn 36 can get stressed out and lose the rate race; the craze for money may even diminish their happiness.
That’s why you should set short-term goals instead, such as paying off your credit card debts or saving a certain amount of money. Ensure you set easily achievable goals in your twenties.
4. Teach yourself how to make a budget
Learning the basics of budget-making will help you secure your financial future and save enough funds for retirement. Monitor your expenses and never spend more than what you earn.
The art of creating a realistic budget begins with setting specific financial goals. Track your expenses to reduce unnecessary spending; try using budgeting apps or spreadsheets to make the process more manageable. Pay with cash instead of credit and control your tendency to overspend.
5. Monitor your spending with an app
Do you calculate how much money you’re making and spending? Track your spending properly so you can hone your budgeting skills. Use apps like Mint to learn how much you spend on what sort of services. For instance, you may realize you’re ordering junk food excessively or paying for subscriptions you don’t need anymore. This way, you can cut down on these useless expenses efficiently.
6. Learn to invest in the stock market
You may think that investing in the stock market is a pastime fit for older adults only. Interestingly, that is not incorrect; baby boomers are the least willing to invest in stocks and shares. However, 81% of U.S. Gen Zers are more open to investing in stocks and earning passive income.
Also, the earlier you invest, the stronger your portfolio becomes. It means that people in their twenties benefit the most from investing in stocks. Consider allocating a retirement portfolio between Roth IRA and a traditional 401(k) and boost your financial prospects in retirement.
7. Start a special fund for emergencies
Create an emergency fund with enough money to cover your living expenses for three to six months. Embrace the mantra of paying yourself first and investing in your future in case something unexpected happens.
The COVID-19 pandemic is a good case study of how people who didn’t plan for financial distress ended up stressed. You can prevent financial downfall by having an emergency money supply. It will help you sleep better at night. Don’t forget that this backup fund is different from your savings.
8. Start paying off your debts strategically
Don’t wait until your 30s to pay off your debts (student loans, for example). Carrying exorbitant amounts of debt can ruin your credit history in the future. And you may think tackling the largest debt sounds like the right way to improve your credit score, but the opposite is true actually.
Clear your small debts first, and then move on to dealing with the larger ones. That’s how you can successfully erase all your debts and prevent these obligations from interfering with your journey toward financial freedom.
9. Always protect yourself with insurance
Data indicates that 1 in 10 millennials have adequate life insurance to help them in case they meet an unexpected demise. That’s why you should seek essential insurance coverage, such as health, life, and disability insurance, to protect your loved ones in case of unforeseen events.
Insurance coverage ensures your debts are paid and your beneficiaries’ living expenses are covered if something happens to you. Also, life insurance payouts are tax-free in America.
10. Avoid unnecessary lifestyle inflation
There’s nothing wrong with living a comfortable life and engaging in the pleasures of life. However, it is unhealthy to overindulge in excessive luxuries and inflate your lifestyle unreasonably. Data shows that almost one-half of millennials overspend to show off, feel good about themselves, or simply because of the influence of social media. But you should resist the temptation to inflate your lifestyle with rising income. Continue living a modest lifestyle and invest all the extra income in your future.
This blog provides tips on securing your financial future and teaches you some crucial financial planning tips, a crucial skill to learn in your 20s. Learn to invest in stocks, pay your debts strategically, save money for an emergency, avoid living a luxurious lifestyle, and optimize your retirement planning timeline. Take charge of your financial journey and pave the way for a successful and secure future!