Your 20s can be an exciting time, but they can also bring plenty of financial uncertainty. Between starting a career, paying rent, managing student loans, and trying to enjoy life, finding enough money to save can feel difficult. Add advice about investing, retirement accounts, and emergency funds, and it’s easy to feel like you’re already falling behind.
You don’t need a lot of money to start planning your finances and making progress toward your goals. It is really just about being able to track where your money is going, then decide what you think is most important, and then find ways to make sure you are developing habits that will help you in the long run.
Start With a Clear Picture of Your Finances
Taking stock of where you are today is crucial to developing the right financial plan for your future. Knowing how much you earn is only half the story; most people have a rough idea of their income but little idea of how they spend money month in, month out.
To start making financial sense of your income, begin by totaling up your monthly income. Next, list all your regular monthly expenses, plus the monthly payments for any debts you may have. Also list your regular monthly purchases, such as eating out, shopping, going to the movies, and hobbies. It is also a good idea to list occasional expenses that come up throughout the year, like car repairs, annual subscription fees, and holiday expenses.
By categorizing your spending into essential and discretionary, you can identify where you can cut back to save. It doesn’t have to mean cutting out all your favorite pastimes; it means being more aware of where your money goes.
Knowing exactly how you spend your money will be the only basis for financial decisions that make sense to you.
Set Financial Goals That Match Your Current Lifestyle
For many people, financial advice focuses on specific milestones they should reach by age 30. Saving as much as possible, paying off all debt, and buying a house are just a few of the common goals for 30-year-olds.
Everyone is in a different place in their financial life. If you just started your first full-time job, for example, you are likely focused on paying for everyday expenses while attempting to save for emergencies. Someone else may be supporting family members or paying back student loans. We can’t compare ourselves to others while trying to achieve our goals. The most important thing is to set financial priorities that fit your current situation.
Identify 2-3 goals for yourself. Do you need to save $1,000 for an emergency? Are you trying to pay off high-interest-rate debt? Are you moving in a few months and need to save for that? Set realistic targets and work within a time frame that lets you review your progress monthly without feeling overwhelmed by your budget.
If you’re unsure how to balance these priorities, exploring different budgeting approaches can help you decide where to focus your money. An AI financial planner is one resource you can use to work through financial questions and consider how different savings or spending decisions might affect your goals. However, any suggestions should be evaluated against your income, existing obligations, and personal circumstances.
Financial goals help you manage your money in a way that meets your current needs while preparing you for your future self.
Create a Budget You Can Actually Maintain
Budgeting does not need to be so strict. You don’t need to lay out every restriction to manage your money. Make a spending plan based on your actual expenses.
For many, budgeting becomes a form of financial restriction rather than management. Instead of following an inflexible plan for spending your hard-earned cash, build a budget based on your past expenses, then manage your money as you see fit from there. As a rule of thumb, make sure you’re paying the minimum on any debt you have, as well as covering the cost of housing, food, and other transportation expenses. Beyond that, you can save or spend as you see fit.
Be sure to include funds in your budget for things you want to do with your money, too. In other words, if you are budgeting to save, don’t forget to leave room for the things that bring you joy and entertainment.
As your circumstances change, review your spending regularly to adjust your budget to maximize your financial discipline.
Build an Emergency Fund Before Taking Bigger Financial Risks
Inevitably, emergencies will strike and require you to shell out hundreds or thousands of dollars for car repairs, medical bills, or even job loss. Having money on hand can greatly reduce the stress associated with these events.
Having an emergency fund can help you avoid using debt to cover unforeseen expenses.
You don’t need to save enough for several months of expenses right away. Start with a realistic savings goal and increase it from there. The time it takes to save for several months of expenses will vary depending on individual circumstances.
By keeping your emergency funds in a separate account from your everyday funds, you can also avoid mindless spending.
Make Debt Repayment Part of Your Plan
Your money should let you live the life you want, not be controlled by debt repayments and high interest charges on your outstanding debts.
Organize your debts in a list that details the principal, interest rate, and required payment for each debt. This list shows which debts are most expensive and should be repaid first.
While many people consider debt repayment when devising their financial plans, how they repay debt varies widely. While the high-interest-rate debt-first repayment approach is considered most effective, some find the reverse debt repayment model more appropriate, as it lets you pay off smaller-balance accounts first.
Also be mindful of any student loans that you may have. Review the repayment terms and options available to you to reduce financial pressure while covering necessary expenses.
Review Your Progress Without Comparing Yourself to Others
Your financial situation will most likely change in your 20s. This may be due to a raise, a new apartment after moving, a partner, or even an unexpected expense.
Set aside time each month to review your spending habits, savings, and the debt you still have to pay off. You don’t need to break down every single purchase. Simply find out whether you are getting closer to your goals.
Don’t compare yourself to others, as they have different incomes, levels of family support, costs of living, and a variety of financial obligations.
Building a financial plan in your 20s doesn’t mean you have to reach every goal by 30. Instead, building money management habits can pay off with better money management and confidence in your ability to make financial decisions.
Photo by Jakub Żerdzicki: Unsplash
