Congratulations on your first job. Things are about to get real! The financial decisions you make in your 20s can affect your finances for years to come. That is why it is so important to work on building healthy financial habits now that you will greatly benefit from later.
Credit card debt traps people in a debt cycle for years so either pay it off now and never use it again or try and use it properly. It is never wise to spend money that you do not have and if you do have to resort to a credit card, try and pay off the balance in full every single month.
One of the most detrimental financial habits you can develop is to rely on credit cards to cover daily expenses when you go over budget. Instead, it is important to have an emergency fund in place, so you do not need to rely on credit. Aim to save up three to six months' worth of expenses. That will cover you in the event of an emergency or unexpected event such as losing your job.
Your first step is to look at your income and create a budget. A budget will help you decide when and how to spend your money properly, giving you the power to decide where your money goes. Following a budget will help you manage your money without stress. You may want to consider using a budgeting app designed for general personal budgeting.
To reach your lifelong dreams, you need to set financial goals. By setting long-term, mid-term, and short-term financial goals, you will be one step closer to financial security A long-term goal, for example, might be saving for retirement, while a short-term goal could be building up your emergency fund.
Now that you have good money coming in, you need to make savings a priority rather than something you tackle when everything else is taken care of. Set up a set amount to be automatically withdrawn from your pay every month via automatic transfer. Set a goal to save 10% to 20% of your income each month to put toward your long-term priorities.
Remember to take full advantage of your employee benefits. These come as part of your remuneration package and can include membership of a staff pension scheme and maybe death in service and health cover if you are lucky. As regards the pension, be sure to match the employer contribution because when you take tax relief and the compounding factor into account, this is basically free money for your retirement.
The great thing about being in your 20s is that you have a gift that only comes around once and that is “time”. If you use your time wisely by investing in the markets early be it for pension or savings then the potential compound interest can make your money grow exponentially over time.
It is a lot easier than you think to build a sound financial foundation for your later years. By mastering the most important money skills now in your 20s, you will be thanking yourself in your 40s and 50s and beyond.