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People often don’t think about proper personal finance practices until they have graduated college, are looking for a job, or are attempting to move out of their parent's house. However, getting the most out of these significant life changes requires planning years in advance. Taking the right steps when you’re young to build a high credit score, prepare for a career, and gather savings could be the determining factor of where you can afford to live and what lifestyle your budget will allow. If you haven’t thought about this yet, don’t worry! The best time to increase your understanding of these 7 financial tips is now.
Financial Professional is committed to helping people of all ages grow their financial IQ. Whether you want to learn to manage your own money or foray into the not-so-scary world of investing, we have the knowledge and tools to help you get started.
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Question: What’s life without good credit?
Answer: Difficult to finance if you’re not wealthy.
If you’ve never had a credit card, you might not have thought to take a look at your score. However, your credit score includes more than purchases – your report includes any loans in your name, old medical bills, and a whole slew of other information that could lower your score. A lower score means a lower likelihood of obtaining a good credit card, borrowing money, getting a reasonable car insurance rate, or even renting living space in the future.
Checking your score while you’re young allows you to notice any discrepancies and correct them, understand where you owe money, and find ways to build it as you approach the next stage in your life. You can check your score for free at Credit Karma and take advantage of its database of resources to help you improve your score.
One of the best ways to build your credit is to start small with one credit card and make small purchases under 30% of your monthly limit. For example, if you are allowed to spend $500 a month, try to limit spending on that card to $150 and pay it off immediately. This will both avoid interest payments and raise your score because of the reliability you have established in regards to your purchasing habits.
Many payment technology companies have decent student cards that serve as a great intro to the world of credit. For instance, Discover, Capital One, Mastercard, and Visa all offer cards suited for students, most of which include cashback on purchases and no annual fee. One thing to keep in mind is that since you’re a beginner, your APR will be high. As long as you keep your cards in good standing, your APR will eventually lower. To help you keep track of your payments – and avoid interest – you can set up automatic payments through your bank.
Credit is tricky, and it’s easy to make small mistakes that cause a lot of damage. Here are a few things to avoid:
Every little bit helps!
If you haven’t done so yet, open both a checking and savings account and deposit whatever money you have on hand. It’s important to start saving early to prepare for the wild array of expenses that come with being an adult. When you open your account, decide on a fixed amount you’d like to keep in your savings at all times, and do not let it fall below that amount unless you have no other choice. Keeping a fund for emergencies or future plans is crucial, especially if you’re preparing to live on your own or buy or rent a car. Having a number you refuse to fall below will make you more likely to spend wisely and earn more.
Of all the financial tips listed in this article, this may be one of the most important. No matter your tax bracket, it’s difficult to attain your goals if you’re consistently spending most of – or more than – what you make.
Creating a budget that includes all of your purchases can be super helpful when looking to save. Take a look at your expenses over the past few months or so and determine reasonable spending limits for groceries, utilities, shopping, going out, hobbies, and any other purchases you are likely to make. Track your spending in each of these categories, and adjust your spending accordingly.
If manually tracking your own purchases sounds like a monotonous way to spend your free time, there are a ton of financial management apps that can do it for you.
Sometimes, you just don’t need to buy that shiny new bauble.
It can be tough to limit spending when you’re in an atmosphere where your friends or family are constantly looking to go out to eat, go shopping, or spend money on nonessentials. By creating a budget, you’ve already set your limits. Now stick to them. If you’ve hit you're going out limit for the month and your friends ask you to go out to eat, suggest staying in and making a fun meal at home, or even eat before and join them for a drink or small appetizer. There are plenty of ways to spend time with your loved ones without overspending.
As far as financial tips go, this feels like a no-brainer – and yet, too much money is wasted annually on unused subscriptions. Go through your purchases and find which subscriptions you’re still paying fees for that you don’t use regularly and cancel them. Subscription-based companies make significant portions of their profits from passive members.
Promotions and sales can be incredibly useful in allowing you to continue to buy what you love without breaking your budget. You don’t have to snip coupons out of local grocery store newsletters (though you certainly can) as there are now easy-to-use apps that find the deals for you.
Practice makes perfect!
Apps like Venmo, Zelle, and PayPal are super convenient options for paying friends back for purchases, splitting bills, and even buying products online and in-store. However, these apps have a history of causing hacks leading to significant money loss, so it’s important to create a unique and secure password, monitor account activity closely for discrepancies, and research a P2P app before downloading to ensure it has a solid security history.
Whether you are living at school, with your parents, or on your own, chances are you have some form of regular payments you have to make. Those can include rent, utilities, wifi, and countless others that seem to pile up the older you get. Make a schedule for when you have to pay, coordinate with roommates or anyone you split them with, and establish a pattern to ensure your credit score stays high and you don’t have to pay extra interest.
Whether you currently have to pay taxes or are just preparing to do them in the future, learn to do your taxes on your own. Paying someone to do them is costly, and it probably isn’t necessary for at least the first few years of your career. How you pay your taxes will depend largely on how you are paid. If you are a contractor, your taxes will not be taken out as you are paid, so you should set aside funds to pay when April comes around. If your taxes are taken out of your paycheck, you may be eligible for money back. Boost your tax IQ with this article on what you need to know.
There’s no time like the present!
The earlier you can get started with internships, fellowships, and alternate work opportunities in your area of interest, the better. Building experience allows you to understand what you’re good at, what you like – and what you don’t – and where you can improve to prepare for your career. You can find part-time, full-time, and freelance work on job sites like LinkedIn, Indeed, and Glassdoor. Handshake also partners with schools to allow employers to target specific institutions for applicants.
In a quickly developing digital world, key marketable skills will improve your chances of being hired. You don’t have to take expensive courses in order to become certified or proficient in some of these skills. Check out YouTube tutorials, free online resources, ebooks, and webinars to boost your resume with certifications in anything from design to analytics to finance. Joining groups related to your career path on sites like Meetup can also lead to free resources and webinars.
Financial Professional offers free articles, newsletters, and an e-book with key financial advice and tips, as well as an entire affordable University meant to guide you in money management and investing.
We’re living in a gig economy, with professionals who understand that when jobs may not be secure, a side hustle can provide an added security blanket to their bank accounts. Sites like Fiverr and Upwork allow you to offer up your services (anything from financial assistance to graphic design to content creation) at your chosen rates.
You can also make good money with online product sales, selling personally created courses and resources based on your areas of expertise, tutoring (perfectly suited to students), freelance writing, offering technological services, or even just completing online surveys. Get creative with your spare time and earn extra money doing what you’re talented at.
Passive income is similar to a side hustle in that it allows you to bring in extra money outside of a full-time job or classes. It’s called passive because generally, the work requires less effort to continue making money. Ideas range from selling products you create, whether those are ebooks, designs, or clothing, reselling products from other brands, to engaging in affiliate marketing or selling photography. Basically, these types of jobs require work to get them going but allow you to continue to make money once the work is done.
Connections are everything in today’s world of job searching. Get on LinkedIn, create a strong profile, and connect with people in the same industry as you. You can also check out Meetup, profession-focused Slack channels, and Facebook groups. People are more willing to help than you might expect. (Plus, the worst they could do is say no.)
Stay in touch with those you may want to work with. Additionally, think about getting a mentor who walks you through your career development plan, offers advice on what you can do to better prepare for a job, and even helps get you in touch with possible employers.
When entering the workforce, it can be easy to get swept up in the excitement of starting your career without taking a good look at the salary, benefits, and opportunities offered at your company of choice. Depending on where you want to live, and the lifestyle you’d like to hold, it’s important to aim to work for a business that has a salary that fits your budget. It’s also crucial to receive benefits such as medical insurance and retirement benefits, and it’s nice to get fringe benefits and paid time off.
Finally, you’ll want to see what opportunities there are to move up within your company. If you don’t love your salary but know there’s a chance you could be promoted within a few years, it could be worth it to be a little broke for that time. However, if it doesn’t seem like there are ample advancement opportunities to better your career and gain higher pay and benefits, you might want to take a look at other options.
This is an underrated financial tip that should get more attention.
It can be hard for YoPros to speak up for themselves if they’re still looking to establish themselves within their companies, but it’s important to negotiate for the pay and role you deserve. Ask for a raise in salary when appropriate; approach your employers with confidence when you feel you deserve a promotion and don’t be afraid to speak up if you feel you’re being treated unfairly. Of course, you should expect to have to prove yourself by working long hours and reporting to bosses you may not love. But especially for females and people of color, it can be hard to stand up when facing discrimination for existing within a space that does not cater to them. Don’t feel that you have to keep quiet just because you don’t look like other high-ranking professionals in the office.
There’s no time like the future, either! (Until it’s the past, anyway).
Yes. Now. In your twenties.
You don’t need to invest much for retirement if you don’t have it; adding even just $10 or $20 a month will kickstart your funds and allow your money to grow for the future. Roth IRAs allow you to start your account at any age (as long as you have earned income), with tax-free growth and withdrawals. Up to $6,000 can be contributed each year. You can withdraw the money at any time without penalty, so you don’t have to worry about wanting to switch your plans in the future. If you even have a little to contribute each month, it only makes sense to begin saving now, and allow compound interest to do its thing.
Check out our article on Roth IRAs vs 401ks for more information.
It can be tough to visualize what your life will look like after school or once you move out of your home, but it’s important to think about your possible financial needs and how you plan to offset them.
Don’t worry. You don’t need to have this all figured out now, but it is good to keep these questions in mind as you make extravagant future plans.
Investing is a great way to turn your money into even more money, and you don’t need thousands of dollars to get started. Many apps are suited for young users to introduce themselves to the world of investments.
And that’s your guide to financial advice at the age of 20. Start small, invest some time and effort into your future, and enjoy the benefits.
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