What if you could bypass a bunch of mistakes that most people make with money in their twenties? If you’re smart with your money, you can be way ahead of the game. Read on to find out how!
Track Your Spending
Most people have no idea where their money is going, whether they’re 25 or 45. A lot of people just do not know why their money disappears so quickly after they get paid. The best thing you can do is track your spending.
When you track your spending you can see where the money leaks are. Awhile back a friend was surprised that a huge chunk of his money went to eating out. He was eating out twice a day with his girlfriend, going to the coffee shop several times a week, and stopping by gas stations for snacks on top of that.
That money can add up pretty quickly! He and his girlfriend started cutting back on their spending and stick to eating out on the weekends. A lot of banks now have apps that track your spending for you. You can also get an app like Mint or Personal Capital to do it for you.
Credit Cards are Not Evil
A lot of people think credit and credit cards are evil. “Avoid them at all costs”, they say. That’s not true at all. Most of the people who promote this idea were just bad at managing their credit cards. If you can spend according to your budget and pay off your entire credit card bill at the end of the month, then you can use credit cards responsibly. And of course, many credit cards offer points or money back with every purchase made.
You often can’t get an apartment or a good mortgage without a decent credit score. It’s almost impossible. There are many jobs who will check your credit score before they hire you. Even insurance companies sometimes check credit scores and whether they should insure you, utility services sometimes check your credit scores before providing you with services.
Credit in itself isn’t bad, it’s just that people tend to misuse their credit cards. Learn to make credit cards work for you, don’t put yourself in a position where you’re an indentured servant to the credit card company.
Here’s a basic range of credit scores
Excellent Credit = 750+
Good Credit = 700-749
Fair Credit = 650-699
Poor Credit = 600-649
Bad Credit = Anything below 600
But…If You Trashed Your Credit It’s Not the End of the World
You can bounce back from having poor credit. You absolutely can. Usually with credit scores anything that can go down, can go back up again. First call up your credit card company or collections agency if you’ve been sent to collections and let them know your financial situation.
Most of them are willing to work with you. Start a realistic payment plan and start paying them back. If your credit cards were cancelled by your credit card company, you can get what is called a secured credit card.
A secured credit card is when you apply for a credit card and put up your own money upfront (like a deposit) to “secure” the card. This deposit can be anywhere from $300-$1,000 of your own money.
So that means if you put up $300 of your own money then you only have a $300 spending limit with that card. If you put up $500 you will have a spending limit with that card. If you put up a $1,000 of your own money you will have a $1,000 spending limit.
By putting up your own deposit this reduces risk for the credit card company. To a lot of people it almost sounds like this is similar to a a prepaid card except when you use your secured credit card, the credit card company reports to the credit bureaus how you’ve been using that secured credit card.
So you’re able to build credit with a secured credit card. No one cares how you use a prepaid credit card so that’s the difference with the secured credit card. You can use a secured credit card anywhere that credit cards are accepted. Make sure that you use your secured credit card wisely, you don’t abuse it, and don’t blow your limit. Pay off your balance at the end of the month. Many people have found that usually within about a year they have rebuilt their credit score.
Once your credit score has improved the credit card company that offered you a secured credit card will often transfer you to a normal credit card.
Live Within Your Means
No, I’m not saying you have to live like a hermit, hoard all your money and hate your life. No one wants to live like this. You can have a life without spending all your money. Spending less than you earn is how you will get financially ahead. There are so many ways to save in today’s world especially for those of us living in first world countries.
If you’re making $50,000 by the time you’re 25 that doesn’t matter if you’re spending nearly all of it or going into debt for your lifestyle. Be smart with your money. As you move through life, your desires for what you want out of life will change and knowing how to handle money will be a huge help. Those who live within their means often have peace of mind as they transition in life.
Save a portion of your paycheque, bonuses, and even gifts no matter how small it is. Maybe your grandmother sends $50 or $100 every Christmas. Save 10% or 20% of that gifted money and spend the rest.
There Will Be Rainy Days
When you’re in your 20’s it’s so easy to think that nothing will happen. Life happens though. There will be days where we will get flat tires, the battery dies, someone gets pregnant or fired from their job, and our pets get sick. Life happens to everyone. It helps to save for emergencies. It’s often recommended you have 3-12 months of pay of an emergency fund, depending on what your current lifestyle and stability levels are.
Start Saving 1% If You’re Struggling to Save
Does saving 3-12 months of an emergency fund sound like a joke? To a lot of people in their 20’s who are just starting out with money it’s very overwhelming! The traditional money advice is to save 10% or 20% of your income. That’s great if you’re good at saving money.
If you’ve never saved a penny in your life then start saving just 1% of your paycheque. Then with each paycheque, increase that savings amount by another 1% until you’re comfortably saving 10% or 20% of your money.
Decide What Kind of Lifestyle You Want
What kind of house do you want to live in? Do you want to go on nice vacations? What is a nice vacation to you? What kind of car do you want to drive? Do you even want to drive a car? Do you want to work for someone else your entire life or do you want to be self-employed?
Do you want a flexible work schedule? How many kids do you want? Do you want to get married? Do you want a job that is at a cubicle or would you want a more active job? What kind of job do you want? What kind of coworkers do you want? Who do you want to be around? Are you an introvert? Then it’s probably not a good idea to work in a super-extroverted job.
Are you okay with having a middle-class lifestyle? Or do you want a more upper middle-class lifestyle? Maybe you just want to be super-wealthy? What is the stress level of the career you want to go for? Air traffic controllers make a six figure salary but they’re also very stressed out. At the same time it can also be very stressful making an income that is at the poverty level.
These are all important questions that you should ask yourself. A lot of people base their careers and jobs off salaries or prestige. You also need to ask yourself what kind of lifestyle you want to have. Lifestyle matters a lot, and as you can see lifestyle isn’t just about money. Lifestyle is also about preferences you have.
Don’t be Afraid to Job Hop
Traditionally we’ve been taught that job hopping is wrong. Actually job hopping can be beneficial to your career if it’s done right. You don’t want to be job hopping every week, month or year. No one wants to hire a flaky job hopper.
However employers no longer look down on job hoppers the way they did when our grandparents were in the workforce. Usually at every new job your salary increases slightly, so often job hoppers can be paid more.
You could stay at one job for two years and build up work experience, and then be at the next job for 4-5 years. There’s no recipe for job hopping you just have to know when it’s time to move from your company, or if you should stay at the company and just move up the corporate ladder.
If you want to job hop it’s not the end of the world but you have to be smart about how you do it, and have good reasons for doing so. You’ll probably be asked in interviews about it, though in most interviews they usually ask why you left your most recent job.
Money is a Neutral Resource
A lot of people demonize money. Some people think money is the end all be all and they get stingy with it and do lots of horrible things with money. You don’t have to become a weird and obsessive person with your money.
The truth is that money is just made up of metal and paper. Money is actually a neutral resource and it’s how we exchange goods and services in everyday life. It’s the way we think and act with our money that makes a huge difference.
Someone can make $90,000 a year and be stingy with their money. Another person can make the same amount of money and be very generous with it. It’s really a matter of perspective.
Happiness With Money is Limited
Having money can solve a lot of life problems, but happiness with money is limited. Princeton University’s Woodrow Wilson School found out that after $75,000 happiness with money falls off for many people. As you make more money throughout your career don’t be blindsided by what’s important in life.
Money doesn’t have to be a big mystery. Just start learning the basics of money one week at a time. Money isn’t as intimidating as people make it seem to be. It doesn’t matter if you think you’re the worst person at managing your money right now, you can absolutely get better.