There is a lot going on during the 20s with so many things fighting for your attention and money. Live it up by all means, but do so responsibly while focusing on building good money habits. Here is a list of core money habits that you should strive to perfect in your twenties for the smooth maintenance of wealth in the future.
1. Keep Track of Your Expenses
Your 20s are about getting to know yourself, your good spending habits, and your bad spending habits. The best way to accomplish this is to track all your expenses and analyze them.
You can keep track of your expenses in any format that is convenient for you. I suggest using google sheets as you can access them from your phone and log expenses conveniently within the same day of purchase.
If you want to be even more efficient with tracking your expenses, you can use something like mint or QuickBooks.
Saving receipts is essential for multiple reasons: tracking expenses for budgeting and reconciling easy returns and exchanges, and proof of purchase for warranty.
Once you get into the habit of tracking your expenses, you will see patterns in your spending. You will be surprised how effective seeing your spending history right in front of you can be to make you realize how your perception of your spending habits is different from reality.
2. Live Below Your Means
Your income will gradually increase during your 20s from being broke during college to getting your first job to increasing salaries with changing jobs. During this upscaling in income, you should make an effort to keep your lifestyle the same. You don’t have to expand your lifestyle to fit your increasing income. This is the one habit that will allow you to pay down all debt and incur some savings that will become 10-fold by your retirement age.
When you are just out of college, it is socially acceptable for you to live like you are broke. Maintain that same lifestyle from college even when you get your first job and through some promotions. If you are comfortable with it, keep living with roommates, keep cooking dinners yourself, keep driving that old car, or taking public transportation. Don’t let your expenses grow unnecessarily as your income expands.
Most finance experts will agree that you are in your golden years during which all the money you save will have an ample amount of time to grow. You will be thankful for any investments that you make and the debts that you pay off during your early years.
3. Keep a Wish List
Let me be more specific! You should keep a running list of things you need but still need to buy. These can be any and all things you need: groceries, items for the house, personal items (makeup, skincare, clothes, accessories), and all luxury/expensive items. Most people spend money impulsively when they see things on sale and get overwhelmed by the bright red tags.
I am not saying that you shouldn’t shop sales. On the contrary, the whole purpose of keeping lists of things you need is to ensure you navigate yourself to these specific things when shopping sales.
If you are the kind of person that ends up buying more things than you need even though you know the exact things you need, the best way is to tag the items you need on shoptgr and purchase them when they hit a certain desirable price.
4. Expand Your Personal Finance Knowledge
Your 20s are the time to expand your knowledge. In addition to developing other money habits on this list, expand your knowledge on personal finance and investing; other money habits will help you save money, while this habit helps you maintain that money.
This includes joining Reddit groups about personal finance, subscribing to good youtube channels, reading some books about financial journeys, putting some money in the stock market, learning about 401ks and IRAs, learn about taxes.
These habits will always keep you informed about the finance world and allow you to make the right financial decisions at the right time. You don’t need to be an expert in either of these topics, but you should at least know the basics.
Essentially, don’t be absolutely clueless about these topics, make the effort to learn about finance and investment, so you can manage the wealth you gather throughout your life.
5. Avoid bad debt
Yes, there are good debts and bad debts. Simply, any debt that you incur that pays for itself eventually is considered good debt. For example, if you buy a property with a loan and rent it out, it’s considered good debt. It will eventually pay for itself with the rental income.
Bad debt is any debt that you will pay down over time with interest, but it won’t pay for itself. The most common bad debt to avoid is credit card debt. According to Nerd Wallet, the average American household has, believe it or not, more than $15,000 of credit card debt. If you accumulate any credit card debt, you will end up paying interest rates that are astronomically high. The $500 TV will end up costing you more than that if you don’t pay it by the due date. Use your credit card as if it is your debit card. Only buy things with your credit cards that you can pay off before the due date.
The worst decision you can make is to only pay the minimum payment on your credit card and accumulate compounding interest of 15% – 25%. Once you get into the habit of having credit card debt, paying minimum payments, and compounding interest piling up on outstanding debt, it is extremely hard to get out of the cycle. Do yourself a favor and take precautions to never get into the cycle in the first place.