“I’m 25 and only make $30k a year. I’ve got student loans. I’m broke! Why should I care about investing?”
I hear this all the time. When it comes to money, many of my peers (at least the ones not completely afraid of their finances) are concerned with upgrading their cars and homes, developing their career, and finding a partner or getting married. These are all good things to do, but something’s missing. We often hear about the same few financial steps for twentysomethings:
Don’t get me wrong. These are important steps! I write about them all the time. But there are other financial habits that we twentysomethings don’t hear about as often:
- Plan for retirement
- Start investing
- Set financial goals
- Give to charity
- Get insurance
It’s not surprising we don’t pay much attention to these “forgotten” financial habits. (Perhaps they’re not forgotten; we just have yet to learn them.) After all, we’re not earning much yet and haven’t had time to accumulate wealth. That makes it seem a little silly to think about things like investing, insurance and—gasp—actually giving some money away!
But how we manage money in our first decade of independence will sculpt our lifelong financial habits. That’s why the sooner we start developing these good ones, the less we’ll have to think about making them as we age (and these habits become ever more important).
Plan for Retirement
This one is a no-brainer. Retirement savings accounts provide great tax benefits. Social Security will not be enough for our generation (if it’s around at all). And even small amounts saved in your twenties can grow to hundreds of thousands over 30 to 40 years. Save for retirement! Read last week’s article 23 things beginners absolutely must know about saving for retirement to learn more.
Yes, saving for retirement is investing. But money-savvy folks realize that investing isn’t just for retirement. A few good investments can help you reach other financial goals faster (like buying a home, starting a business, or sending your kids to college). That’s why it’s never to early to learn how to make smart investments and develop the habit of putting a few dollars a month aside to invest (independent of your savings and retirement contributions).
Set Financial Goals
Obviously, you don’t need a boatload in the bank to start jotting down a financial plan for yourself. Yet for some reason I don’t think most of us do this. Having a written financial plan helps us identify where we want to go, what it will take to get there, and how we can get started. If nothing else, I recommend everybody (at whatever age) have a five-year financial plan.
Give to Charity
Regardless of what consumer products marketers try to tell us, most of us living and working in developed countries are earning far more than we need to meet our basic needs (food, shelter, medicine, etc.) It’s selfish not to give at least a small portion of what we earn to help the greater good.
Maybe you’re not comfortable giving away ten percent of your income while you’re chipping away at debt or trying to move out from a cramped apartment; but get in the habit of cutting a few small checks to charity every year. As they say, it’s the act of giving—not the amount you give—that counts the most.
You need to have health insurance! Getting health insurance coverage is one of the most important things you can do for yourself financially.
But don’t stop there. Insurance is designed to protect our assets from unfortunate events. Crash your car? Insurance pays for the damage. House burn down? Insurance pays to rebuild. Make a habit of understanding how insurance works—and asking whether you have enough of it. As your bank account grows, so should your auto and home insurance limits.
Single twentysomethings don’t need life insurance, but if you get married (or even live together and split expenses), you need to consider it. Term life insurance is dirt cheap for healthy young people and can provide a vital safety net for a surviving spouse should the unthinkable happen.
If you’re well on your way to mastering the financial basics, start to make these “forgotten” financial habits a part of your money plan. The sooner you do, the more time (and money) you’ll have to do other things as you go along.