Our lives would seem so meaningless without goals, isn’t it? Goals are an integral part of our lives. We all have goals, and most of our ambitions are centered around the completion of these goals. From academic goals to career goals to friendship goals, the nature of goals we set for ourselves is multifaceted. What we rather do not want to think about in our 20s is financial stability. However, it will be smart of us to have financial goals in our 20s.
We may feel that there is enough time to mull about finances. But we should rather look at the other side of it. If we embark on a journey of financial stability in our 20s, we would enter our 30s with greater zest and confidence. We will have fewer things to stress about, and we would not be much vulnerable to financial insecurities. Having said that, achieving financial goals in our 20s would give our lives the right head start.
On the other hand, if we begin to manage our finances well in our 30s, we will feel undue pressure. Then we would look to maximize our savings and finances in minimum time. This is because when we enter our 30s, the share of responsibilities for us is much greater. We will feel burdened all of a sudden and would regret having not cared about finances in our 20s. So, why have regrets from lives when we can rather have the pride of nailing our financial goals? We know time and tide wait for none, so why not start early then?
In this blog, we will shed light on the seven most crucial financial decisions and goals you need to meet in your 20s. Each of these goals will play a role in securing your financial future. Remember, your cost of living will quadruple in your 30s. By that time most people get married or even have kids. It takes years of financial planning to support family expenses. Given that, beginning financial planning in your 20s is an ideal start. Let us get going with these financial goals without much ado!
Financial goals you should set and ace in your 20s
Secure your career
It is an undeniable fact that millennials are talented, creative, and diligent workers. They chase their dreams in an uncompromising manner. In fact, millennials are known for their conviction and character. However, millennials are also known for switching jobs frequently. In your 20s, you can experiment with your career.
You have the wonderful opportunity to explore your options and get hands-on experience. But in your upper 20s, let us say by 26 or 27, you should aspire for a stable career. By this time, you would have gained experience in two or three jobs. This is the ideal time to decide what you want to do in the longer run. Stability should become an important virtue for you at this age.
Hence, securing a source of income that is promising for the future is a financial goal in itself. Also, you should have a clear vision if you want to change you have other plans in the future. For instance, let us say you want to become an entrepreneur or author after ten years of your job. So, you should have clear plans for the execution of these plans. This will help you designate a part of your income to the ultimate ambition of your life.
These days people tend to choose careers around the latest trends. To cite an example, a lot of people want to become full-time social media influencers. It is always amazing to choose a career you are passionate about. But you have to evaluate the long-term prospects of your career choices as well. What is a handsome career option today may not be the same five years down the road! Hence, securing your career will require a lot of deliberation. This is where the journey of financial stability will begin.
Start a contingency fund
The ongoing COVID-19 pandemic has taught us many lessons. One of the most critical lessons is that life is quite unpredictable. It is important that we prepare for emergencies and contingencies. Having said that, you should start maintaining an emergency fund in your 20s. Remember, this emergency fund should be in addition to other savings plans. Savings is not a popular opinion for people in their 20s, but it is imperative to cut back on expenses and save money.
You can grow your emergency fund in a systematic way. For the first two years, you can dedicate five to ten percent of your income per month to this fund. Gradually, as you get increments, you can start putting more money into this fund. The following are some of the significant advantages of maintaining an emergency fund.
Benefits of maintaining a contingency fund
- It will be useful in meeting emergency medical expenses
- You can use your emergency fund for avoiding expensive loans
- You will feel lesser stress about financial insecurities
- Lastly, you will earn interest if you maintain this fund with a bank
So, as you can see, the emergency fund will have you covered for all unprecedented events. Going into your 30s, a hefty emergency fund will give you a sense of security and assurance. This sense of security is imperative for your peace of mind.
As per the American Psychological Association, money is a significant cause of stress in adults. It is a significant cause of stress for more than 70 percent of people between 18 and 35 years of age.
Needless to say, with financial planning, you can keep financial stress at bay. A large proportion of people feeling financial stress in their 30s may not have aimed at financial security in their 20s. But you should not commit the same mistake! Maintaining an emergency fund to meet contingencies will be a prudent investment.
Break the vicious cycle of debt
Getting rid of your debts is the simple mantra to achieve financial prosperity. In your 20s, you should aim to end the debts started by you during college. This will include settling your credit card EMIs and other smaller debts. Of course, if you have a car loan or home loan to settle, it will take years. But the credit card debts should be eliminated.
In our college life, we tend to spend a lot on our social life, clothes, and excursions. Because the income is limited in college, we rely more on credit cards. This is where we get trapped in the vicious cycle of debt. Needless to say, any kind of debt is a challenge to financial security. So, before entering your 30s, you should settle as many debts as you can.
Besides, if you have multiple credit cards, surrender all but one. Keep one credit card for emergencies and rewards. Having multiple credit cards will keep you tempted to make unnecessary purchases.
Improve your credit score
This is in continuation to the previous financial goal. When you settle your debts and credit card EMIs in time, you are able to maintain a healthy credit score.
You must be wondering why you need to maintain a good credit score. Well, the following benefits should help you understand.
Benefits you can enjoy with a good credit score
- You can avail lower interest rates on loans
- Higher chances of loan approvals
- Approvals for higher limits on loans and credit cards
- Convenience in renting a house or apartment
- Lower rates on car insurance
Hence, maintaining a smart credit score comes with smarter advantages. This is the age of remote working opportunities and freelancing jobs. These opportunities for online entrepreneurship and self-employment will amplify over the coming years.
So, if you choose to become an entrepreneur in the future, you may need a loan. For that, your credit score will determine the approval and limit of your loans.
So, keep tracking your credit score and keep improving it.
Enhance your knowledge of personal finance
Lack of knowledge about personal finance and financial planning can lead to disastrous financial decisions. Hence, one of your financial goals should be to educate yourself on personal finance. Personal finance will give you insights into smart investments and growing your money. You will also learn how to manage your taxes by enlightening yourself on personal finance. You need to have a thorough knowledge of the best personal finance tips.
Not everyone is from a financial background or a graduate in finance. So, you need to make some extra effort to understand personal finance and the associated risks. There is ample content on the internet about personal finance. Otherwise, you can watch videos on Youtube and read books on personal finance. Educating yourself about personal finance is a part of the decision-making process when it comes to managing your finances. The following are some of the finest books on personal finance.
Best books on personal finance
- The Total Money Makeover
- Why Didn’t They Teach Me This In School?
- Rich Dad Poor Dad
- The Automatic of Millionaire
- Broke Millennial
- I Will Teach You To Be Rich
Buy health insurance
Again, the pandemic has given us the realization of how important health insurance is. In the absence of health insurance, your medical expenses can touch the sky. Medical expenses often drive people to file bankruptcy! So, it is important to explore health insurance options and buy the most beneficial one.
You can also open a health insurance account, and that can save you money on health insurance premiums. The advantages of health insurance are known to everyone. In times when health has become vulnerable and everyone battles stress every day, a good health insurance plan covers medical expenses.
Besides, it is vital to note that employer cover is insufficient most of the time. On the other hand, a good health insurance plan will give you comprehensive coverage. Also, you can get tax benefits from health insurance plans. You should also know that your age has a lot to do with the costs of premiums. At a younger age, the premiums costs are lower, and they increase with your age. So, if you have not bought a health insurance plan yet, you should not wait any longer.
Start a retirement savings plan
Savings should be a priority in your 20s against all odds and temptations. The sooner you start planning for your retirement, the better it will be for you. So why not have a retirement plan sorted out in your 20s itself? By the time you retire, you should have enough money to maintain the standard of living that suits you. You would not want to give up on your life’s preferences and luxuries post-retirement due to a financial crunch. Therefore, you should know how to boost your retirement savings.
Let us try to understand with an example the advantage of a retirement savings plan. Let’s say you put USD 2000 per year in your retirement account starting from the age of 25. You continue to make this investment till the age of 64. That means you invest a total of USD 78000 over the years and suppose the rate of interest is 5 percent. You will be amazed to know that you will have around USD 228, 600 at the age of 65. See how rich a meager investment of USD 2000 per year can make you at the age of 65!
But if you start your retirement plan at the age of, let’s say, 35, you will have half the amount at the age of 65! Hence, to reiterate, you need a retirement plan to sustain your life after retirement. If you break USD 2000 into per month contributions, it comes out to be around USD 160 per month. That is simply the cost of a few burgers, isn’t it? Small investments can do big wonders!
To encapsulate, the sooner you begin to work on your financial goals, the more stability you can give to your finances. But the start point of this journey to financial security is to realize and set financial goals. You should take the above financial goals seriously and acknowledge the benefits that you can enjoy by accomplishing these financial goals. From clearing your debts to maintaining a good credit score for future loans, you need to plan everything.
Furthermore, you need to maintain a retirement savings account as well as an emergency fund for the future. The future is uncertain and we do not know where it will lead us to. But what we know is that we can prepare for the future by working on financial goals today!
So, let’s tweak how we have been looking at our finances till now.