If You Are in Your 20s, You Need to Know These 5 Simple Money Rules
If you’re in your 20s, you’re at a critical stage in your financial journey.
You may have just graduated from college, started your first job, or moved out on your own. This can be an exciting time, but it’s also a time when you’re likely to face a lot of financial challenges and decisions.
Some of the decisions you make now, can and will shape the trajectory of your life. That’s why it’s important to know the money rules that can help you build a strong financial foundation for your future.
In this post, I’ll cover some key money rules that every 20-something should know in order to set themselves up for financial success.
1. Learn to pay yourself first. This is crucial because it is the first step to financial success. The first step to doing something greater with your money is learning how to keep it. Paying yourself means setting aside money for your own financial goals and needs, rather than just using all of your income to cover your expenses.
There are a few different ways you can pay yourself. One common method is to set aside a certain percentage of your income each month, either into a savings account or an investment account. This allows you to build a financial cushion and prepare for the future, while still having money available for your current expenses.
2. Always keep an emergency fund. It’s okay to dance in the rain, literally. But when it comes to the issues of money, you probably need an umbrella. That said, It’s important to have an emergency fund because life is unpredictable, and unexpected expenses can come up at any time. Some examples of unexpected expenses might include car repairs, medical bills, home repairs, or even lost gadgets.
Having an emergency fund can help you weather financial storms and avoid going into debt or relying on credit cards to cover unexpected expenses. It can also give you peace of mind, knowing that you have a financial safety net in place in case of emergencies.
As a financial rule, it’s generally recommended to aim for an emergency fund that is equal to at least three to six months of your living expenses. This can provide a good cushion to cover unexpected expenses and allow you to maintain your financial stability. It’s also a good idea to keep your emergency fund in a separate, easily accessible account, such as a high-yield savings account, so that you can easily access the money when you need it.
3. Before spending money wait for 24hrs. Yes, you heard that right. Waiting 24 hours before spending money is a financial rule that can help you make more mindful and intentional decisions about your spending. It’s based on the idea that taking a little bit of time to think about a purchase can help you determine whether it’s really something you need or want and whether it’s a good use of your money.
There are a few different ways you can implement this rule. For example, you might set a rule for yourself that you have to wait for even more than 24 hours before making any non-essential purchases, or that you have to sleep on it before making any big-ticket purchases.
By waiting before spending money, you can give yourself time to consider whether the purchase is really necessary or if it fits into your budget. It can also help you avoid impulsive or emotional spending, and give you a chance to do some research and compare prices before making a decision.
4. Avoid high-interest debt. Avoid debt, well, if you have to borrow, avoid high-interest debt. Borrowing money comes with a cost, and it is called interest. High-interest debt refers to debt that has a higher interest rate than other types of debt. This can include credit card debt, payday loans, and other forms of lending.
When you have to borrow money, have a clear plan for paying it back (and often you don’t). Instead of going for high-interest loans, look for alternative options for financing, such as taking out a loan with a lower interest rate or using savings to pay for a purchase, which is why you need to have that in the first place.
By avoiding high-interest debt, you save yourself a lot of financial stress, as high-interest debt can be difficult to pay off and may require significant sacrifices in order to meet the monthly payments.
It is important to understand the terms of any loan or credit agreement before agreeing to it and to be aware of the potential risks and benefits of borrowing money.
5. Budget using the 50/30/20 rule. The 50/30/20 rule suggests that you should allocate 50% of your after-tax income to necessities, 30% to wants, and 20% to savings and debt repayment.
Necessities include things like rent or mortgage payments, groceries, utility bills, and other essential expenses that are necessary for daily living.
Wants are non-essential expenses, such as dining out, entertainment, and travel. These are things that you might enjoy but are not strictly necessary for survival.
Savings and debt repayment refer to activities that can help you build financial stability and security. This category includes things like saving for an emergency fund, retirement, or other long-term financial goals, as well as paying off credit card debt or other types of debt.
The 50/30/20 rule is meant to be a general guide, and the specific percentages may vary depending on your individual financial situation and goals. It can be helpful to track your spending and see how it aligns with this rule, as it can give you a sense of whether you are allocating your money in a way that is sustainable and aligns with your priorities. However, it is important to remember that everyone’s financial situation is unique, and what works for one person may not work for another. It is always a good idea to seek professional advice if you have any questions or concerns about your financial situation.
In conclusion, these are just the basics, regardless they are foundational and can help you go a long way. Whether you are just starting out in your career or are already established, these rules can help you make the most of your money and reach your financial goals.
