How to be Financially Responsible in Your 20s

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Your 20s are an exciting time. Maybe you’ve just graduated from college. You may have your first “real” job and a place of your own. It’s not typically a time to worry about kids and mortgages—and even longer before retirement becomes a concern. But being financially responsible when you’re young means these major life events won’t be so stressful when you’re older.

5 Insure and Invest

When you’re young and in the peak of health, you may think paying for health insurance is just a waste of money. You’d be wrong. Accidents can be expensive without insurance, and being young and fit won’t protect you from the bird flu or whatever killer epidemic is ready to strike next. Make sure you insure your possessions (including your car and the contents of your home) so you’re prepared in the event of an unpredictable accident, crime or natural disaster. Investing is also about being prepared for an unpredictable future. If your employer offers IRA or 401(k) accounts, these can offer some tax-free investments to get you started. These options also give you a stress-free way to start saving for retirement. It may seem like something you don’t need to worry about, but starting that retirement fund now enables you to potentially retire earlier—and do more with your work-free days when you do.

4 Set Goals

You may think you have plenty of time to party before you settle down in the suburbs with a spouse, two kids and a dog—and you may be right. But that’s no reason to procrastinate. Set goals so you have more control over choices, instead of passively reacting to events as they happen to you. The fact that you’re young means you can plan in smaller, more incremental ways, rather than trying to make major life changes at once without any safety net. For example, if you think you’d like to buy a home by the time you’re 35, set a monthly goal and start saving toward a healthy down payment.

3 Start Saving

“How can you start saving money when you barely have any as it is?” you ask with a laugh? Instructing your bank to automatically shift a certain amount to a savings account with each deposit will help you build an emergency fund. If something unforeseen occurs—you have a serious illness or lose your job—you’ll have money to get you through that dire episode. Even a few dollars a paycheck add up. Or cut out that latté habit a couple times a week and sock away that cash instead.

2 Make a Budget and Stick to It

The idea of living within your means sounds simple, until you realize all of the temptations of being young and experiencing the freedom of adulthood for the first time. Nobody’s saying you can’t go out on the town, but going out every night puts a strain on more than your wallet. Keep track of all of the regular expenses you can’t control—things like food, rent and utilities—then allow yourself a little of what’s left over for “entertainment.” Nights out will be more fun when you’re not worried about whether you’ll be able to pay rent.

1 Avoid Consumer Credit Cards

It seems so easy to have a credit card in your wallet, especially when you’re just starting out. Credit card companies send out applications left and right, and every store offers a version of its own. When you’re taking your first steps in the professional world, it makes sense to pay for the things you want later, when you’re in a higher income bracket, right? Wrong. All those interest charges mean you can pay twice as much—or more—for something you never needed in the first place. Have a card if you must, but save it for emergencies or pay it off every month.

Jennifer Mueller has been writing professionally since 1995, when she began writing a bi-monthly column for "This Week in WNC." Mueller holds a Bachelor of Arts in political science from the University of North Carolina at Asheville and a Juris Doctor from the Indiana University School of Law.

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