Lately, I’ve been getting a lot of personal finance questions from 20-somethings, so I decided to come up with a list of 10 personal finance tips. Here they are:
1. Get out of debt and stay out. If you’re in your 20s, chances are you have at least one of these forms of debt: car payments, student loans, credit card balances, mortgage. Debt is no fun and your responsibilities will only become greater as you get older. If you have debt, pay more than the minimum payments and get yourself out of debt as soon as possible. Get a second job if you have to. Which leads us to…
2. Get a side hustle or two. Even if it doesn’t pay as much per hour as your day job, there is a lot of value in getting a side hustle. Check out this article (Spoiled or Clueless? Try Working Minimum Wage Jobs). You’ll become a more disciplined spender, develop social skills, and will probably become a more emphathetic person. I got my real estate license, worked as a server at a Mexican restaurant, and currently drive for Uber/Lyft. I’ve learned so much from all of these experiences and continue to benefit today from these side hustles.
3. Watch less TV. TV is a fun and easy source of entertainment, but it will cost you in ways you might not realize. You may not think ads have any impact on your spending, but companies wouldn’t spend billions on advertisements if they didn’t work. Watch less TV and you may start seeing yourself “needing” less stuff.
4. Don’t overspend on a car. It’s easy to think that since you went from making almost nothing to making a real salary, you now have plenty of disposable income to spend on a nice car. Yes, you need a reliable source of transportation to get to and from work and to get around town, but buying a brand new luxury car may not bring you the joy you hoped for. Be reasonable, and your future self will thank you.
5. Set goals and write them down. Do you want to buy a house? Start a family? Travel the world? Lose weight? Whatever your goal is, you will be more likely to achieve your goal if you write it down and take steps to really consider what it takes to achieve that goal. For example, if you want to buy a house, you may realize that saving up a 10 or 20% down payment may take many years and you will have to really buckle down and change your lifestyle to save up that down payment. It may motivate you to start tracking your expenses, to spend less, or to start budgeting.
6. Learn to budget. I didn’t really start budgeting until recently, but it has already made a difference in my life. After tracking expenses for a trial budget, we realized we spend a lot more on food than we would like to. Eating out was killing our budget. We made a lifestyle change and started planning out meals, going grocery shopping, and eating at home more often. Budgeting allows you to direct money where you really want it to go.
7. Educate yourself. Knowledge is power and ignorance is expensive. These days, you can learn how to do almost anything on the internet, especially YouTube. Got a broken fridge? Need to replace your cabin air filter? Need to learn how to cook something? Try to learn how to do it yourself first, and if you don’t think you can do it, then hire someone or ask someone for help. If you actually do figure it out, you’ll save a good deal of money and feel a sense of accomplishment. You’ll also be able to carry that skill with you for the rest of your life.
7a. Educate yourself on personal finance. In most cases, investing some time learning to manage your finances will pay off much more in the long run than a series of raises in your 20s. Educate yourself on budgeting, taxes and tax deductions, investing, retirement, self-employment, and all things personal finance. You’ll see this type of education provides a great return on investment.
8. Give. Giving may seem contrary to getting out of debt and saving money, but I would say that giving actually helps people financially. When you make giving a part of your budget, you will find that you will manage the rest of your finances better. Give to causes you believe in. You may change someone’s life.
9. Invest in low-cost index funds, not individual stocks. It’s easy to make the mistake of thinking you’ll do great investing in individual stocks. I made that mistake. If you’re going to dabble in investing in individual stocks, I would suggest making it about 10% or less of your total portfolio. Invest the rest in low-cost index funds with low expense ratios. When investing, keep it simple and chances are you’ll do much better.
10. Travel. If you plan on getting married and starting a family in the future, your responsibilities will only increase and your freedom will decrease. Take some time now to travel or to try things you’ve always wanted to. Traveling provides value in that it opens your eyes to different cultures and different lifestyles. It can provide you with different perspectives on the world. Just make sure to save up for travel and not to get into debt for your vacation.