If you are fresh out of high school or college, you have an amazing opportunity.
People in their 20s can build a solid financial foundation that will serve them well for the rest of their lives.
Perhaps you plan to live lean and save a pile of cash. Or, if you’ve gotten off to a bad start and made a few money mistakes, take heart: You’ve got plenty of time to reverse those errors and get back on your feet.
To make the most of your fresh start in life, here are 10 money moves you need to put into action:
1. Start a retirement account
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I know, retirement isn’t even a blip on your radar screen. But it will never be easier to start saving than right now.
By putting money in an account in your 20s, you maximize the near-magical phenomenon of compound interest. As Money Talks News founder Stacy Johnson says, it’s far better to start saving small amounts early than to be forced to save a lot late.
Your employer may offer you a 401(k), which is the easiest way to save. The money comes right out of your paycheck, so you’ll never miss it. Plus, many employers will match your contribution up to a certain percentage.
If a 401(k) isn’t available through your job, start an IRA instead.
2. Discover your risk tolerance
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Once you open an account, you’ll have to decide how to invest your money. Most investors need to strike a balance — you don’t want to take too much risk, but it’s also a mistake to take too little.
Being young, you probably don’t have a lot of money — or a ton of investing experience. So, to get started, check out Stacy’s tips in “2-Minute Money Manager: How Do You Start Investing With Little Money?”
3. Write down your goals
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You don’t have to map out your entire life. Heck, you don’t even have to stick with any plans you create. You’re free to change them at any time.
However, having an idea of where you want to go in life will make it easier to make smart financial decisions. Then, you won’t end up at 40, eyeing your friend’s summer home and feeling sorry for yourself that you can’t buy one, too.
4. Consider paying cash for most things
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Personally, I think being able to pay cash for nearly everything is life-changing. Those of you who have been up to your eyeballs in debt — and had the embarrassing experience of your credit card being declined — know what I’m talking about.
Tell yourself you’ll be the type of person who always pays cash. That doesn’t mean you won’t ever take out a loan, and it doesn’t mean you won’t ever get a rewards credit card that you pay off each month. It does mean you might think a little longer and harder about going into debt, and only do so if there are no other options.
5. Create a budget that supports your goals
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I won’t spend too much time on this money move because we already have an excellent article: “Resolutions 2019: Budget Your Way to Financial Goals.”
The key is to ensure your budget supports your goals. If you hope to be married or buy a house in five years, you’ll want to have extra savings built into your budget for those things.
6. Create an emergency fund
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Your budget also needs to include a line-item for emergency savings. This money should be separate from your retirement fund, so don’t think your 401(k) or IRA counts.
And emergency fund is your insurance against unexpected expenses. You should have enough money in your fund to cover three to six months’ worth of expenses. For more, check out “9 Ways to Build an Emergency Fund When Money’s Tight.”
7. Pay off your debt
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In a perfect world, you’d start your adult life with zero debt. But reality is probably different for you. There are student loans to pay, and you may have been suckered into opening a credit card or financing a car somewhere along the way.
Don’t use the excuse that past mistakes give you license to make future mistakes. They also don’t mean you have to resign yourself to living a life burdened by debt.
Start today to pay off what you owe. For more tips, check out “How to Pay Off $10,000 in Debt Without Breaking a Sweat.”