Budgeting in Your 20s: Financial Literacy Tips to Help You Succeed
Studies show that 46% of people in their 20s feel like they are behind expectations for personal financial success. This is often due to a lack of savings, reliance on parents for financial help, and many other factors. While many people in their 20s struggle financially, there are many easy changes that you can make to improve your financial skills. Do you want to learn more about budgeting tips for young adults? Keep reading this guide to budgeting in your 20s for the top financial literacy tips to follow!
Know Your Spending Habits
Knowing your financial habits is one of the first steps to improving your budgeting. If you want to improve your financial health, you need to know where you are starting.
This is especially important as digital payment methods are becoming more popular. Platforms like Venmo and Paypal are helpful, but it makes it hard to realize how much money you are truly spending.
Learning more about your spending habits and where you are spending the most money can help you identify the areas that you can improve. For example, if you spend a lot of money each month on eating out, you can try to limit how much you eat out in future months.
Set a Budget
Once you are more familiar with your spending habits, you can start setting a budget. This is essential if you want to improve your finances, as it will give you a good idea of your income and expenses each month.
There are many different types of expenses that you will have each month. These include fixed expenses and variable expenses, which will change each month. You first need to track your spending in each of these areas.
Next, you can determine your income. If you don't have a salary, this may be an estimated number. From this income, you can subtract your expenses and set aside money for different areas of your budget.
Regularly Review Your Budget
Not only do you need to set a budget, but you need to stick to it. One way you can make sure you are meeting your budget is by reviewing your spending each month.
Tracking all of your income and expenses will ensure that you stick to your budget. It will also help you find areas where your budget can change.
For example, you may have set an estimated grocery budget of $300 each month. If you find that you are spending less on your grocery bills, you can adjust the numbers in your budget to make room for something else.
Find Ways to Cut Expenses
When you regularly review your budget, you can also find ways to cut your expenses.
It will give you more information about your spending habits and you can identify areas of your budget that are not necessary. This is especially helpful if you need to cut down on your expenses to prepare for a large expense or other financial needs.
For example, you may notice that you are spending a lot of money on your monthly subscriptions. Going through each of your expenses will help you see what subscriptions you are paying for and can make it easier to cancel the subscriptions that you no longer need.
Create an Emergency Fund
Having an emergency fund is an essential part of any budget. This is one of the most important things you can save for in your 20s. An emergency fund is used to pay for any unexpected expenses or emergencies.
For example, you may have unexpected medical bills or need maintenance on your car. When you have an emergency fund, you will be prepared for these expenses and you will not have to worry about taking out a loan to cover the costs.
It is recommended that you have at least three to six months of expenses in your emergency fund. This way, if you lose your job or have a large expense, you will still be financially secure. Still, starting with any amount in your emergency fund can protect you for the future.
Build Your Credit
Building your credit is necessary if you want to improve your finances and prepare for the future. Having good credit is necessary if you want to take out a loan and will typically provide you with lower interest rates.
Your credit score is made up of several different factors.
One way that your credit score is generated is by paying your bills on time. Make sure you never make late payments! Payment history makes up the largest portion of your credit history.
You also need to improve your credit utilization. This is how much of your credit limit you use. Typically, you shouldn't spend more than 30% of your available credit each month.
If you don't know your credit score, getting a copy of your credit report is a good place to start! Plus, it will give you a good idea of what you can do to build more credit.
Pay Off Debt
Paying off debt is one of the first things you should do when you are budgeting in your 20s. Whether you have debt from credit cards, student loans, or anything else, debt can seriously affect your finances.
If you have too much debt, it can affect your credit score and may flag you as a high-risk borrower. This will make it much more difficult to qualify for loans in the future, like a mortgage.
It is also another expense added to your monthly budget. When you pay off your debt, you will have more flexibility with your finances! Make sure paying off debt is a priority when you set your budget.
If you need help, Triggator offers an accelerated debt pay off tool to help you become debt free.
Set Financial Goals
Setting financial goals is necessary when you want to improve your budgeting and overall financial health. If you don't have any goals, it can be difficult to stay on top of your finances.
However, it is much easier to accomplish things when you have reasonable and achievable goals.
For example, you may want to set a goal to pay off all of your debt within a certain amount of time. Or, you can set a goal to save up for a vacation! When you have a goal for your finances, you will be more likely to manage your money better and improve your budgeting.
Contribute to Retirement Accounts
While you may think your 20s are too early to start thinking about retirement, it is never too early to start saving! The earlier you start contributing to your retirement accounts, the easier it is for your savings to grow.
When you get a full-time job, you should see if your employer offers retirement account options, like a 401(k). Many employers will even match your contributions, so this can help increase your savings.
Even if you don't have a retirement account for your job, you can still use other retirement accounts to start saving before you have a full-time job. This includes Roth IRAs!
Create Good Financial Habits
Creating good financial habits is necessary to improve your budgeting and financial health. The way you spend your money in your 20s often leads to long-term habits and will affect the ways you spend money in the future.
When you establish good spending habits at a young age, it will be easier to continue these habits and succeed financially.
For example, you may want to get into the habit of checking your account balances regularly. This will help you go over the charges to your account and will help you identify the areas of your budget where you are over-spending.
Another good habit to start is to regularly put money into savings. Aside from your retirement savings, you'll want to build up your emergency fund and save for fun things like vacations.
By starting the savings habit now, you'll pad your account and be financially prepared for wherever life directs you.
Research and Seek Advice
Finally, it is important that you do what you can to learn more about financial health and building wealth. There are many sources that you can turn to for financial advice, so researching all of these different sources can help you improve your finances.
You should start by self-educating. You can often find financial advice from financial experts online. These can help you learn how to save money, how to invest, how to stay out of debt, and more.
If you don't know where to start your research, you can also seek advice. You can speak with someone, like a financial advisor, to get tips to start improving your finances.
Looking for Financial Literacy Tips? Learn More Today
When you are in your 20s, you can use budgeting and financial knowledge to start building your wealth. This can help you prepare for retirement and be protected financially as you live on your own.
If you need other tips for budgeting, Triggator can help! Our online budgeting planner can help you keep track of your money, save for the future, pay off debts and improve your financial skills.
Contact us today to learn more about our services and for other financial literacy tips to follow!