MoneyUnder30.com
MoneyUnder30.com

Five “Forgotten” Financial Habits to Develop In Your Twenties

“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.

Start Investing

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.

Get Insurance

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.

About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. Yes, it is really crazy to see some people doing almost everything right in that they are saving money and working hard but yet some still think that it is wise to go without health insurance and leave themselves open to financial disaster if they were to develop and expensive illness.

  2. Giving to charity is one of my favorite things to do.

    Maybe it’s a skewed observation, but I think a lot of young people like me are very passionate about causes,and it would be great if we all spent the dollars to get behind them.

    Baker from Man vs. Debt just turned me onto Charity: Water the other day. Had no idea this even existed. It’s great to discover new organizations doing something awesome.

  3. What about good old fashioned work ethic? There’s a knock on Gen Y that they are too entitled and spoiled. Do you think this is true?

    I don’t know why recent grads don’t come in first, leave last for at least their first two years. Perplexing since there’s so much to learn!

  4. David Weliver says:

    @Wojiech: you’re totally right about young people being passionate; tons of us get involved with causes and volunteer, etc., yet there’s often a disconnect to give financially to charity when money is still a rather precious resource to us. I just checked out Charity: Water, thanks for pointing that out!

    @Samurai, there’s been a lot of debate about Gen Y being entitled as you say.

    I think, however, that younger generations’ values are shifting, and with good reason. Employers today do not “take care of” workers the way they once did (with prospects of a lifelong career, advancement, and even a pension).

    So young workers kind of reject the idea they have to “pay dues” at a job to climb the ladder. I don’t think young workers are so “entitled” that they won’t take junior positions—but they DO want *meaningful* work right out of the gate. And let’s face it, a lot of corporate grunt work isn’t meaningful.

    But give us meaningful work, and I assure you, we’ll work our butts off. Not because of how much we’re paid, but because we love what we’re doing.

    When young workers job-hop in search of something more fulfilling, older employers see it as entitlement. But I think it’s really just young people deciding that they value meaningful work and quality of life over arbitrary commitment to an employer that wouldn’t think twice about laying them off if necessary.

  5. This is a great post. I do give to charity, albeit not much because I think it’s really important to put something in my ROTH IRA and my 401k as a necessity. For all I know I won’t be able to contribute if I go back to school, get laid off, etc.

    Instead I like to volunteer when I can. It’s a good way to meet people and it also is far more satisfying than just cutting a check, you end the day feeling like an impact was made.

  6. As for the hopping from job to job, I can relate somewhat. I had tried to leave my job but had little luck (economy is a big part of it). Initially I hate my job but then I began to take on a long term perspective. Once I realized that work is usually an unenjoyable necessity and that grunt work is an important step to future more satisfying work, I didn’t mind as much. As much as my current job is not for me for the rest of my life, I am glad I stayed because I have been able to get vested as well as earn raises which will help me negotiate higher salaries in whatever my next job is.

  7. Health insurance is definitely something people forgo, however i have talked to several people lately that also failed to have car insurance – in states where it is illegal to be uninsured!!

    I won’t go as far as saying we need more education on insurance, but there needs to be a younger age limit in which you can be on your parents insurance. Instead of learning the lesson when you are 25, you should learn it when you are 18.

  8. Thanks for providing a practical post on improving one’s overall financial situation.

    I agree completely with you in that one ought to write down financial goals so they become more obtainable and concrete. I think more people would benefit a lot just by doing this alone.

  9. jimmy antepara says:

    Hey david – Are there any tax benefits for donating to charity?

  10. Doing a lot lately to educate myself about finance, and I’m glad to see that for a 25-year old I’m pretty good as far as the 5 here go. Started a Roth IRA just a couple months ago and am having fun finding the best index funds!

    Noticed the mention of charity:water and that reminds me of another organization that a friend of mine does water resource management for called blood:watermission. Not as big as charity:water but is another worthy water organization to consider.

    You’re officially on my rss feed now!