I know there are lots of lists like this out there (on the inter-webs) but I thought this was an especially good one, so I decided to summarize and pass along. I will put a hyper-link to the original article at the bottom. Hopefully you can skim this post and pat yourself on the back for having already checked-the-box on these basics. Your 20s are the perfect time to get started going down the right financial path (and avoid paying the stupid tax). See below a link to a previous post listing the top 10 financial blunders (a.k.a, the stupid tax).
https://jimmysmoneytips.com/2017/07/07/top-10-financial-blunders/
There are many advantages to being young – time and the power of compounding are on your side – but only if you see the big picture and take control of your financial future.
- Create a budget – you already know this one, but it’s probably the best tool to ensure you have a road-map to financial success. A budget gives you the freedom to spend on categories that are fully funded. Use mint.com to automate this process and don’t be afraid to fail – then make corrections and spend less than you make. See below a previous post on mint.com
https://jimmysmoneytips.com/2017/08/08/mint-com-has-changed-my-life/
- Build an emergency fund. Start by putting $1,000 in your savings account, and only use it for emergencies! (hint: a new iphone isn’t an emergency). After you have paid off your consumer debt (e.g., credit cards, student loans, etc.) increase your emergency fund to 3-6 months living expenses.
- Start saving for retirement – there are many different ways to determine how much to save but if you want a simple rule then start with 15% of your salary (including any company match). Save early and often!
- Pay off costly credit card debt – stop paying so much needless interest – sometimes they compound daily – which could lead to an endless cycle of making credit card payments for years. Set a goal to pay off these balances in 12 to 18 months – put it in your budget and stick to it! If you can’t resist the temptation to use credit cards then cut them up!
- Knock out your student loans – I don’t have any great advice here but I will encourage you to stay motivated and do your best to make extra payments to kick sallie-mae to the curb as soon as possible.
- save for a home. I really want you to have your dream home, but I also want you to realize your first (a.k.a., starter) home shouldn’t be your “forever” home. Start with a less expensive home – I recommend 2X your household income. For example, if your household income is $100,000 then aim for a max budget of $200,000 for your starter home. Save up 20% for the down-payment (to avoid PMI insurance cost) and then finance via a 15 year mortgage – preferably with a credit union (typically lower closing costs/fees).
- create a will. I know this a little morbid – but in some states (North Carolina for example), your estate will automatically go through probate if you don’t have a will. Probate involves going to court and probably means attorney fees – save your loved ones the inconvenience of probate and document how you want your final wishes carried out.
- Get health insurance. This is usually a no-brainer because an unexpected medical crisis could wreck your finances. Medical debt is the leading cause of personal bankruptcy.
- Decide on graduate school. This is a cost-benefit calculation in my book. How much will a graduate degree increase your salary? How much does graduate school cost? If the increased salary isn’t sufficient to “payback” the cost of graduate school in 3 to 5 years, then I recommend you forego graduate school. Too many folks attend graduate school without a plan and without knowing if, or how much, this extra degree will increase their salary.
- ask for a raise. Know what you are worth. See my previous career advice post (see link below). Do your research and don’t be afraid to have a conversation with your supervisor about your performance and what milestones you need to achieve to get a raise. Your career is your biggest asset. Invest in yourself!
https://jimmysmoneytips.com/2017/08/22/career-advice-2/
The original article is linked below: