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Few things strike fear into the hearts of 20-somethings like finance terms—money management, debts and assets, and the kicker: budgeting. It doesn’t help that understanding your financial situation seems harder than your high school calc class. But it doesn’t have to be confusing. We asked the financial experts, and there are just seven things we really need to think about to stay on top of our moolah.
1. Learn your spending habits.
Sure, this sounds like run-of-the-mill self-help advice, but do you know how much you spend on going out or groceries every week? Most of us don’t. “We do so much spending without thinking,” says Karen Carr, a financial planner at Society of Grownups. “It’s not about depriving yourself but finding how you can get the most out of your money.”Once you get a better feel for your spending habits and ask yourself some important financial questions (Where am I now financially and where do I want to go?), you can set up a realistic spending plan—yes, it’s OK to splurge now and then.
2. Beware of credit card debt.
A lot of mindless spending can be attributed to credit cards. It just isn’t the same as handing over a Jackson, so you want to make sure that swiping doesn’t get out of hand (unless we’re talking about Tinder).Credit card debt is seen as “bad debt” because it’s not tied to an appreciating asset, like a mortgage or student loan, says Alexa von Tobel, CEO and founder of LearnVest. “We recommend paying off the credit card with the highest interest rate first while making minimum payments on your other cards,” she says. “In the meantime, consider going on a cash diet so you don’t rack up additional debt in the process.”
3. Pay attention to your credit score.
Credit scores don’t seem important until you try to sign an apartment lease or apply for a car loan: Then it could be the factor that determines whether you get the keys or not.Many credit card statements now come with your credit score, and you can also access your score for free on Credit Karma. “Paying everything on time builds your credit score,” Carr says. “But make sure to take time to understand the other factors, such as utilization, which is the percentage of your credit line that you use. In this case, the smaller the percentage, the better.”
4. Set up an emergency fund.
If you’re living paycheck to paycheck, it’s hard to think about starting any sort of savings. But then a rainy day comes—a pipe bursts or you have an expected trip to the hospital. You can’t plan for what’s going to happen, but you can start a savings account to make sure you stay afloat.“We don’t use the term ’emergency’ lightly,” von Tobel says. “It refers to real emergencies like sudden job loss or car repairs. The goal is to stash away at least six months’ worth of take-home pay.” Yes, that’s a lot of money to save, but you don’t need it all tomorrow. Take baby steps and allot a small amount of your paycheck in the fund every month.
5. Understand your student loans.
Student loans are a huge burden for many 20-somethings. And they can be hard to pay off—just over a third of borrowers make full payments on time. “If you have public, federal loans, there are many different programs and repayment options,” Carr says. “And no one likes to hop on a call, but chatting with your lender can lead to a change to your payment plan that makes it more affordable.”
6. Take advantage of your benefits.
Everyone in the working world gets take-home pay, but many of us are also lucky enough to get benefits from the company we work for. Those things—health care, dental, and retirement—are all part of our overall compensation. And if you don’t use them, you could be throwing thousands of potential dollars out the window, Carr says. “Generally speaking, if your employer offers 401(k) matching, that’s a great way to maximize your contributions,” von Tobel adds. It might seem crazy to stash away cash for retirement in your 20s, but every little bit—even $50 a month—counts.
7. Don’t be afraid of investing.
If all of the talk of the stock market in The Wolf of Wall Street sounded like a foreign language, you’re not alone. The finance system is full of confusing terms like “dividend” and “liquidity,” but that doesn’t mean you can’t get in on the game.“Investing seems like it’s something for someone who’s older and wealthier,” Carr says. “But the big secret is you don’t need to be a stock-picking genius to invest.” Companies like E-Trade make it easy to super easy to buy and sell stocks.