5 Financial Goals You Should Think About In Your Twenties
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The years between your 20th and 30th birthday can be some of the most important in your life. This is the decade where you truly start to become independent and form your own adult life. It can be a scary time of life, particularly where your finances are concerned.
Everyone in their twenties needs to set some financial goals that they can focus on. While you don’t need to pressure yourself into achieving them all in your twenties, having goals will help you stay on track and avoid huge financial mistakes. With goals in place, you’re less likely to make the kind of mistakes you’ll need to spend your thirties fixing.
So here’s a list of five financial goals you should have in your twenties:
1. Save Enough For A Home Deposit
Most people want to own a home eventually and for a lot of people, it makes sense to buy a home while they’re fairly young. Ideally, you should be saving up enough money to afford a deposit on a mortgage. A deposit for a home is usually a large amount of money, but all it takes to get it saved up is some smart money management and budgeting. One thing to consider when budgeting to save for a house deposit is that the amount you’ll need to save will depend on what kind of home you’re looking to buy. The more expensive the house is, the more you’ll need to save.
Why is this a goal you should focus on achieving? For starters, it’s usually better to own a home than make rental payments every month. It can be more affordable over time, so you could save a great deal of money in the long run. However, it can also be a smart money making financial decision. A serviced apartment or house is something you own and will live in, but it’s also something you can make money from. If you end up moving for work or traveling long term, you could use it as a rental property and make money from it each month. Additionally, if you sell it after a few years, then you may be able to make a decent profit that way also.
2. Get A Credit Card
Most people won’t think about getting a credit card until they’re in their twenties. In fact, it’s pretty much impossible to get approved for a credit card unless you have a regular source of income every month. For most, this time usually arrives when you’re in your early twenties and have your first reliable full-time job. As such, you should apply for your first credit card when you feel like you’re in a position to be responsible with it.
Credit cards can be beneficial if you use them correctly. When you actually make good use of your card, then you can greatly improve your credit score. This will help you get lower interest rates when buying a home or a car and save you money in the long run.
The important thing about using a credit card responsibly is that you shouldn’t use more than 30% of your available balance and you should pay it off at the end of every month. Therefore, you should only use your credit card for purchases that you know you can afford and pay off.
Having a credit card in your twenties not only helps build your credit score, but it also helps you learn how to use it correctly and to your advantage.
3. Start An Emergency Fund
Your twenties are the ideal time to start saving money and learn how to save it smartly. One of the best things you can do is start an emergency fund. As the name suggests, this is a fund that you only touch in emergency situations. For example, if you get into an accident and need car repairs or have a medical problem that creates costly hospital bills. With your emergency fund, you have a supply of money that acts as a bit of a safety net in tricky situations. So instead of having to get an expensive loan, you can pay for things yourself by dipping into this fund.
Starting an emergency fund is an essential financial goal as it just makes you more secure and safe. Without one, you’re not protected in case something goes wrong and you don’t have the money to pay for it. The way I see it, you have two things that can happen when you start an emergency fund. Worst-case scenario is that an emergency pops up and you have some money to cover it. Best-case scenario is that your life is free from emergencies and you’ve just saved up money that can follow you later into your adult life.
Your first goal for your emergency fund should be $1000. Once that’s saved, you should aim to have six months worth of expenses saved. Dave Ramsey has a great plan for saving an emergency fund and managing finances that I highly recommend checking out!
4. Build An Excellent Credit Score
I mentioned a credit score earlier on but achieving an excellent rating is a financial goal in and of itself. Your credit score is a figure that financial institutions look at to see whether or not you’re worthy of their credit. In simple terms, it decides if you’re trustworthy or not when borrowing money. Some companies also look at this score when you’re entering into a contract. Some cell phone providers will run a credit check just to make sure you’re not a risky client and can pay your bill on time. Once you’re an adult and thinking about finances, you need to think about building your credit score.
The primary reason behind this is that you need a positive credit score to do just about anything significant in your financial life. Remember the house you need to save up for? Well, if you don’t have a good credit score, then you’ll never get approved for a mortgage. Remember the credit card you should get? Without a good credit score, you won’t get one. The same goes for any other loans you may need in life, you’ll have to have an excellent credit rating.
Read Also: How To Improve Your Credit Score
5. Plan For Retirement
What? You should start planning for your retirement before you’re 30? I promise this is not crazy. Planning for your retirement is such a smart thing to do in your twenties. Think about it, if you only start thinking about retirement when you’re forty or fifty, then this gives you around 15-25 years to save up and set things in motion. But if you start when you’re in your twenties, then you have an additional two decades worth of saving to take into account. This can make a considerable difference when you no longer have a job and depend on your savings to get by.
There are a few things you should start doing to plan for your retirement at this stage. The first thing you can do to make sure you’re saving for retirement is take advantage of any retirement saving options your employer offers, like a 401(k) or pension, and make sure you’re getting any matching benefits available. If you’re employer doesn’t offer any retirement saving options, find a financial advisor and open a retirement account that you can add savings into. Even $100 a month in your twenties can make a huge difference for your retirement later in life.
So those are the five financial goals you should think about in your twenties. If you’re reading this and you’re over thirty, then don’t panic just yet! There’s always still time, you just have to start shifting your focus onto your financial goals.
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