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 parents’ house. However, getting the most out of these significant life changes requires planning for 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.
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Financial Tip #1: Build Good Credit
Question: What’s life without good credit?
Answer: Difficult to finance if you’re not wealthy.
Check Your Credit Score
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.
Consider a Credit Card
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.
How Not to Build Good Credit
Credit is tricky, and it’s easy to make small mistakes that cause a lot of damage. Here are a few things to avoid:
- Racking up multiple credit cards: Having too many credit cards can lower your score, and they’re much harder to keep up with. Start with one card and avoid in-store credit cards that brands offer customers.
- Pushing off payments: I’ve said it once and I’ll say it again. Make your payments, on time, every month – and not just for your credit card, but all bills.
- Canceling old or inactive cards: While you shouldn’t rack up too many cards, canceling old ones can shorten the length of your credit history and therefore lower your score. If you want to cancel any, aim for your newer ones. Keep old cards active by making small purchases on them every once in a while and immediately paying them off.
- Making too many credit inquiries: Inquiries such as asking for higher credit limits can lower your score. Try not to put in too many requests and damage your chances of a higher limit in the future.
- Having a boring report: Having just one type of credit can hurt your score, as you haven’t proven you can handle multiple types of lending responsibly. Believe it or not, it would look better to also be paying off a loan and a mortgage (as long as you keep up with payments).
Financial Tip #2: Save
Every little bit helps!
Open Checking and Savings Accounts
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.
Create a Budget and Stick to It
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.
Utilize Financial Management Apps
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.
- Stash is a saving and investing app that provides tools and info regarding best money practices, the right investments for you, and how to save for the future, complete with advisors to lead you through the process. Plans range from $1–9 per month.
- Mint connects to your bank account and brings all your finances to one place, and tracks your spending in categories chosen by you. It also comes with unlimited free credit scores, give you tips on how to save and spend responsibly, and lets you view all of your money in one place.
- Clarity Money helps you budget by sector, organize your bills, automate savings, and track your spending, investments, debt, and savings all within the app.
- If you don’t want your bank account connected to a third-party app, you can use Pennies, which similarly allows you to set up a budget, but has you enter your own purchases manually.
Financial Tip #3: Cut Unnecessary Spending
Sometimes, you just don’t need to buy that shiny new bauble.
Say No Every Once in A While
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 your 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.
Cancel Subscriptions You Don’t Need
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.
Find the Deals
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.
- Honey is a smart shopping assistant that scans the internet for coupons every time you make an online purchase, and finds the best promo codes to include at checkout. The process requires minimal effort from you and results in incredible savings.
- Student Beans collects all brand deals for students and tracks current sales, creating a database of the deals you are eligible for and alerting you about ones you may be most interested in.
- Groupon, a familiar favorite, comes with incredible deals that allow you to visit your favorite locations and attend your favorite workout classes, spas, restaurants, tours-you name it. Your life doesn’t have to slow down to save money.
Financial Tip #4: Practice Smart Habits
Practice makes perfect!
Be Careful with Peer to Peer Payments
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.
Pay Every Bill Right Away
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.
Learn to Do Your Taxes
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.
Financial Tip #5: Build Your Career
There’s no time like the present!
Get Work Experience Early
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.
Gain Marketable Skills
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.
Develop a Side Hustle
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.
Create Passive Income
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.
Craft Connections in Your Preferred Industry
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.
Look Closely Your Dream Job(s)
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.
Advocate for Yourself
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.
Financial Tip #6: Plan for the Future
There’s no time like the future, either! (Until it’s the past, anyway).
Start Planning for Retirement
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.
Think Ahead to Post-grad Financial Needs
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.
- Are you planning on renting or buying a new place to live? Do you know what areas you can afford to live in? Will you have to find roommates to live with?
- Will you have student loans to pay off? How much money should you set aside each month for payments?
- Do you know how much you should plan to set aside to pay taxes each year? Have you factored that into your budget?
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.
Financial Tip #7: Learn about Investing
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.
- Robinhood offers commission-free investments starting at just $1 in fractional shares, letting you build a portfolio, learn as you invest small amounts, and build your knowledge in the space before going all-in with big stock purchases.
- Stash is a personal finance app that offers fractional shares as well, paired with banking, investing, retirement savings and budgeting, all in one place. You can learn about the finance world while beginning to engage with it.
- Acorns is also a holistic personal finance app that allows you to round up on your purchases and save or invest the leftover change. It also includes an automated retirement account, and resources from experts in the industry.
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.