Entering your 20s marks a significant step towards independence and self-reliance. However, managing personal finances at this stage has its own unique challenges. Developing financial literacy becomes increasingly important, especially with the potential for higher earnings.
Here are some tips on how you can start navigating finances in your 20s:
🪨 Building your financial bedrock: Life changes and Transition in your 20s
Amidst the thrill of newfound personal and financial independence, it's easy to overlook the importance of laying a solid foundation for our financial well-being.
Along with this comes so much confusion in your 20s about things like:
- Post-grad transition
- Debt
- Investing
- Budgeting
- Building your financial foundation
But if you feel behind or confused about your finances, you're not alone - and we’re here to help.
Doing Well offers you a humanized personal approach to your finances - and we understand and empathize with the nuances of navigating your finances in your 20s.
Here are some first steps you can take to get started today:
- Decoding your first professional paycheck: You've landed your first real job, and the paycheck looks promising. But hold on before splurging – taxes come out first. Consider putting some into your 401(k) to lower your taxable income. Don't forget about your health insurance options or contributions to your HSA. What's left is your Net Income – that’s money in the bank!
- Budgeting for basics post-grad: Money's rolling in, but it's going out just as fast. From paying bills to catching up with friends, it's all adding up fast. Take a good look at your income and make sure it covers about 50% of essentials. Then, allocate around 30% for wants and reserve 20% for savings. If your income and expenses don't match, it's time for a review to realign things - breaking down your budget line by line can help you visualize this.
- Managing debt and savings: Remember to include debt repayment in your budget. Student loans accrue interest, so aim to pay at least the minimum and, if possible, a bit extra. Allocate your savings immediately into a high-yield savings account. Ideally, aim to save 3-6 months' worth for emergency funds.
🤑 Money Mindset Matters: Cultivating a healthy relationship with finances and life in your 20s
Cultivating a healthy relationship with your finances and money is crucial in your 20s to develop long-term well-being and a stable future. Here's how you can begin to tackle common challenges and develop a positive money mindset:
1️⃣ Overcome financial myths & build a healthy money relationship by:
- Educating yourself about personal finance to dispel common myths like the sunk cost fallacy
- Not falling for the myth that you need a high income to build wealth
- Reflecting on your personal values and priorities; understand what money means to you beyond material possessions
- Developing an abundance versus scarcity mindset
2️⃣ Combat lifestyle creep by:
- Avoiding the temptation to inflate your lifestyle proportionate to increased income
- Using extra income to pay off debt, save, and invest
- Differentiating between needs and wants and prioritize spending on experiences and items that align with your true values
3️⃣ Strategize for financial independence by:
- Keeping your emergency fund fully funded at 3-6 months' expenses and prioritize using it for real emergencies only
- Investing in your future by contributing to retirement and savings for life changes and big events
- Continually staying educated about personal finances and investment strategies
- Considering avenues for additional potential sources of both passive and active income like side hustles, side jobs, and more
Remember that money mindset, mental health, and finances are all intertwined. If you feel like it's time to work towards improved mental health in your 20s, addressing your finances is a crucial element.
🛣 Pathways to future prosperity: Navigating Your Financial Future in your 20s and beyond
It's never too early to start investing in your future, and your 20s are a powerhouse for investing.
You have a significant advantage when it comes to investing over time, especially with the power of compounding interest.
Investing a dollar amount in your 30s could potentially yield a few hundred thousand dollars, but starting in your 20s with that same amount has the potential to grow into a million-dollar investment.
Here are some essentials to keep in mind:
- Take advantage of your employer-sponsored retirement options such as 401Ks, employee profit sharing and vesting, pension plans, and health savings accounts
- If you’re an entrepreneur, starting your own business, or just working side jobs — there are personal investment options such as Solo 401Ks, Personal IRAs, and SEP IRAs
- Diversify your portfolio by investing a small portion of your post-tax income in stocks, bonds, and a high-yield savings account
- Ensure you’re saving and planning for future goals like homeownership, marriage, travel, and life changes
- Dial in on your insurances such as health, life, and more to make sure you are paying for what you need and want and getting rid of what you don't
- Invest in your personal and professional growth and development; through continuing education so you can strive for career advancement
Your 20s is your time to strive and thrive, to grow and build the foundation for your financial future while learning about yourself. It can be exciting, but also scary and confusing to be on your own for the first time.
Doing Well is here to help you start adulting the right way - offering human support to help you build a financial plan that is sustainable, responsible, and impactful on your life and future.
Don’t go it alone. We're here to help you by:
- Crafting a personalized budget that works with your income and expenses
- Designing a proven plan to pay off debt, save, and invest in yourself
- Reviewing your insurance policies to make sure they're dialed into your needs
- Developing a fully unique financial plan for your success today and tomorrow
- Providing you with a human coach who listens and understands your financial situation
- Offering you monthly reviews and email support whenever you need it
- And much more!
Your 20s are for growing and thriving, not just surviving - a solid financial plan will put you on the path to success.
