Your twenties are the best time in your life to get a great start to setting yourself up financially for your retirement. If you want to conquest your finances in your 20s, read this and get started now!
This blog post will focus on learning to manage your money simply and effectively in your twenties.
It is also a personal reflection of how we could have done a lot better with our finances in our 20s. I want to serve you by sharing what we could have done better and sessions learned.
These ideas are relatively simple and don’t take a lot of time to implement.
The money you make in your twenties can set you up for retirement due to the amazing effects of compound interest. Yay for that!
Compound interest is free money or “a millionaire’s best friend” as Dave Ramsey would say. Check out this article that demonstrates the power of compound interest.
Anyways…here is my story…
Back when my husband and I were in our twenties, we knew that we wanted to have kids one day but we were having fun and put it off until our late twenties/early thirties. We were both making decent money at the time and thought that we were contributing enough to our retirement plans.
Also, as a joint family venture we decided to buy a rental house to build equity. While I was still in university, we lived in one of your rental houses for a few years and rented out the basement to tenants until I was done school.
Once I was done school and got a job, we decided to buy our own house in the burbs. So, we bought a little fixer upper with a basement suite. We rented out the basement suite which paid for a good portion of our mortgage.
After a couple of years, we got tired of people living in our basement and decided to build a new house to give us more space. Once we moved into our brand-new house, we were finally living without anyone in our basement!
The issue was we had grown accustom to a certain kind of lifestyle because of the rental income (i.e., eating out all the time, nights out, ski trips, new clothes all the time, etc.) as our expenses were relatively low.
We didn’t take the thought seriously that we needed to lower our spending now that we didn’t have this extra rental income and a higher mortgage payment. Did I also mention that we got married just before moving, I changed jobs, we both bought new vehicles, and a ton of new furniture all in the same year? Over about 5 years, we also went on some expensive trips to Mexico, Barbados, Bahamas, and Europe. We did go into debt at this time but were able to pay it off relatively quickly.
Taking our finances in our 20s seriously just didn’t happen.
The problem that I see now is that we didn’t make our twenties count financially towards our retirement as much as we could have and then we had a major life change….The birth of our first child just after I turned thirty.
This, of course, changed everything!!!
So, what would I tell my twenty-something self if I could go back and do it all again?
1. Know your financial situation.
This is key!
Track all your expenses and after-tax income.
Know exactly what you have coming in and out of your accounts.
Go through your statements and make a list of all the reoccurring expenses (ie, utilities, mortgage/rent, internet, Gym, etc). Then see how much you spend on stuff you don’t need that you can cut out or limit.
Add it all up and subtract from your income. This is basic budgeting. If you haven’t budgeted before, get to it. Make this a life long habit. You won’t regret it.
I didn’t start budgeting until 2016 when I was 35. Now that I look back at this I wonder how I even functioned. I didn’t know how much exactly we had coming and how much we had going out. I was oblivious.
2. Change your mindset about debt.
What do I mean by this? Think of personal debt as a dirty word. Debt is bad. Debt is evil.
I thought debt was normal. I would say to myself, everyone has debt, right? Credit card debt, student loans, car loans, lines of credit, etc.
This ridiculousness caught up with me suddenly one day when I realized we hadn’t made any dents in our debt. I became extremely stressed about it (bad part) and obsessed with getting rid of it (good part).
Tips to change your mindset about debt and spending:
- Think about what got you into debt in the first place and take responsibility even if you have a student loan.
- Be happy with what you have. This is the practice of gratitude.
- Do not even attempt to keep up with friends and acquaintances. Chances are pretty good that they are broke and in debt. It is all a facade. That Land Rover they are driving is probably on a 7 year payment plan. Even if it’s not a facade, don’t compare yourself to others.
3. Get Rid of Debt.
If you have debt, you need to change your mindset that consumer debt is a dirty word. It’s a disease.
Besides your mortgage, tackle that debt like a linebacker. Get angry. Get vicious. Make sacrifices. Just get it done.
~Now, make a plan to tackle your debt.
Dave Ramsey’s debt snowball method is so simple and so effective. All you do is list your debts and start to pay down the smallest one first and then go the next smallest, and so on. While you are doing this, pay the minimum on the others. I think it is so effective because most people get a win fairly quickly and it gives them the motivation to keep going.
~Ensure you are getting the lowest interest rate possible.
If you have credit card debt, line of credit, student loan, etc., compare the interest rates.
Do some research to see what other rates are out there so you can leverage this information.
Call your lender and negotiate a better rate using your research as leverage. If they want to keep your business, they will match the interest rate.
If that doesn’t work, refinance your debt to a lower interest rate. Basically, this will mean that you are replacing your current loan(s) with a new loan at a lower interest rate and therefore, means you will be saving money on interest.
4. Save for the Unknown.
Life can be messy and unpredictable. To plan for these times, you gotta save!
Now that you know how much money you have coming in and out, figure out how much you can afford to reasonably save each month.
Set up a bank account where this amount is automatically transferred. This will stop the temptation to spend it.
Save up at least three months of expenses in case of emergency. In doing this, make sure you shop around for a savings account with a higher interest rate. I use Tangerine in Canada.
Check out this post that discusses U.S. high-interest bank accounts.
5. Always Look for Ways to Save Money.
~Cook for Yourself
Learn to cook if you don’t know how. I know this one seems obvious but hear me out. I can sense the eye rolls.
Let’s say you eat dinner out twice a week for a total of $40. If you do this 52 weeks of the year that is $2,080! That’s a lot of money. Now, I’m not saying never eat out, just cut back significantly.
Here are some simple tips to break the eat-out habit:
- Meal plan! Take 15 minutes each Sunday and write out your meals for the week. Go grocery shopping and only buy what you need.
- Make a double batch – freeze it or take it for lunch.
- Prepare freezer meals if you are short on time.
- Use a Crock Pot. Read: Easy and delicious Crock pot recipes
- Use an electric pressure cooker when you are short on time. I love my Instant Pot. You can cook meat from frozen in a ridiculously short period of time. One of my top small kitchen appliances!
- Eat out of your pantry and freezer. Challenge yourself to make meals with the food you already have.
- Pack a lunch. Making your lunch still costs money but if you stick to simple and inexpensive meals, I guarantee you will save money.
- When you have leftovers that’s enough for a full dinner, freeze it for a future lunch when you find yourself without a plan (because it will happen!)
- Take turns hosting dinners with friends. Ask friend to bring a side dish.
- Make your own coffee.
~Be a DIY’r for Life.
- House: If you own your own house, you will save a ton of money every year if you do your own repairs. There is a tutorial or 10 for pretty much everything on Youtube.
- Vehicle: Learn to do your own oil changes.
- Beauty: Do your own nails. Wax your own legs.
6. Always Look for Ways to Make Extra Money.
One of the easiest ways is to sign up for Ebates (unless you don’t like free money).
Ebates IS totally legit! I use it all the time and it is so simple. All you have to do is create an account and when you are shopping online, activate before you make a purchase. You can choose your money to go into your Paypal account or they will send you a check.
You aren’t going to get rich off it by any means, but earning money back on purchases you were going to make anyways, is just a no-brainer.
The variety of stores somewhat depends on the country you live in. I mostly use it for Amazon, Zulily, Old Navy, Gap.
Caution: make sure you don’t buy anything unnecessary just because you will get cash back.
Check out my related post
7. Stagger Your Big Purchases.
Don’t buy a bunch of big ticket items around the same time.
We screwed up probably the most of any of the areas on this list. We bought cars, furniture, electronics, and appliances for our new house all at the same time. Now that everything is 10 years old, well it is all getting old!
Late 2016, we had to replace our washer, dryer, and dishwasher all in a six-week period. That hurt.
Now both our vehicles are getting old and breaking down.
Also, now that we have other expenses like daycare and kid’s activities, we can’t afford to buy all of these things at once.
Please learn from us and stagger your big purchases.
8. Sell Your Unused Stuff.
Even if you only get $8 for something, it adds up fast. Keep a container of the money you bring in from your sales and use it for something useful. In the last year, I have sold a ton of stuff lying around the house and I have made over $1000!
I really missed out on this one for all those years.
9. Stay Healthy.
If you are an avid gym goer, don’t necessarily cut this from your budget. Staying active is obviously important for the health benefits but it can also prevent large expenses down the road.
Also, when you get life insurance you will be asked a zillion very personal questions about your health and you might have to give samples of blood and urine to be approved. If your health has deteriorated, you are looking at not being approved or having high premiums.
If you have no choice but to cut your gym membership, checkout the following awesome youtube channels to get some free fitness:
10. Advanced Education/Credentials. Is it worth it?
I have thought about getting my MBA mostly for the credentials. But decided not to given the amount of money I was already making as a consultant and the large price tag of the courses. To me, it would not pay off.
However, if you are in a profession where designations are available, you might want to consider working towards it because usually designations not only mean more money but more opportunity as well.
For instance, Have a CPHR designation for human resources in Canada. I had to write an exam that required a lot of preparation and submit an experience evaluation. At every step of the way, I had to pay. It cost me about $2000 to get it. However, it was necessary because most HR jobs in Canada require it.
Another example is the CPA designation in the U.S. and Canada. Accountants need it.
11. Make Lots of Retirement Contributions.
If your employer has a company matching retirement plan, max it out! (401K, RRSP)
If you can’t max it out, change your situation so you can.
What I mean is cut something from your budget and/or start bringing in extra money. DO NOT miss out on free money!
Aim to contribute 10-15% of your pre-tax income to your retirement savings investment accounts. If this is not realistic for you right now, set a goal to increase your retirement savings each year.
12. Getting Married?
If you are getting married, don’t go overboard if you are footing the bill.
Trust me, all the little details are not that important. After years of marriage, you will not remember all the little expensive details but you will remember standing at the alter and the kind words from your guests.
We got married in Mexico. It was beautiful, inexpensive, and with plenty of notice we still had a ton of family and friends come.
13. FUTURE PARENTS Buy Used or Borrow Baby Stuff.
You do NOT need that top of the line crib and matching dresser, the baby swing, two different play yards, bouncy chair, jumperoo, jolly jumper, a million toys, a ton of clothes, etc.
Trust me on this one.
- See if you can borrow some things from friends.
- Check out your local sites on Facebook, Kijiji, Craigslist, Letgo, etc. to see what you can buy on the cheap.
- Go to garage sales.
- Wait until you have the baby to buy a lot of the stuff.
You might not even end up using things that you thought you would.
If you realize you need something, you are going to need to get out of the house anyways. Or order it online.
With all the money you don’t spend on useless baby stuff, you can use to financially conquer your twenties.
Here is what I bought in advance that I definitely didn’t need.
- A bunch of new born outfits. Why? Because getting a new born dressed up all the time is a serious pain and a waste of time. Plus they are probably just going to poop all over it anyways. My kids lived in sleepers for the first six months of their lives. Have a couple of outfits. Done.
- Baby swing. My son loved it so much he wouldn’t sleep anywhere else other than in my arms. Kind of a problem. I decided it was better not to have it at all. My daughter hated the thing.
- Baby blankets. I had a million blankets and receiving blankets before baby came. In reality, I think I only used about 4 or 5.
- Every baby toiletry: vats of Vaseline jelly, 4 kinds of diaper cream, baby powder, Tylenol, etc. I think I still have almost all of the Vaseline to this day – 6 years later.
- I would get one tub of Vaseline, one tube of diaper cream, and one package of baby Tylenol. Buy the rest only when you need it.
- See my post here on preparing financially for your maternity leave.
14. Keep Tabs on your Credit Rating.
Your credit score reflects your credit history and tells lenders if you are likely to pay back any debt that they might lend you.
There is a myth floating around that your credit rating isn’t really that important. That is simply untrue unless you will never do any of the following:
- Apply for a mortgage
- Refinance Debt – if you want to refinance any debt such as your mortgage, a student loan, etc, your credit score will play a big factor in what kind of interest rate is offered.
- Apply for rent – if you don’t have a mortgage, your credit can still be used to determine if you will be a good renter. After all, your credit score is largely based on your ability to pay off your debt. If you can’t pay your debt, a landlord is going to assume you won’t be able to pay your rent.
These are the main reasons your credit score is important.
I recommend using Credit Karma as it is FREE. Also, checking your score will not impact your score.
15. Get informed.
Read a few articles or books on personal finance for crying out loud!
Sadly, in my twenties I didn’t give a crap. I thought it would all just work out in the end if I was making some sort of monthly contributions to my retirement.
16. Set Short and Long Term Goals
Now that know your financial situation, set goals each year. Think about what you want to achieve in the next year.
Also, look into the future a few years. Here are some examples of things you might be planning for:
- Pay off your student loan
- Buying your first home
- Getting married
- Having Kids
These are some big ticket items so the sooner you get serous about achieving them the better off you will be. Obviously.
Your goals need to be SMART:
- Specific (Clear and well defined)
- Measurable (Includes exact amounts and/or dates)
- Achievable (Small stretch which means you can definitely accomplish your goal but it will stretch you just a little bit)
- Relevant (Consistent with your life goals)
- Time bound (Set a deadline)
So don’t just say…”yeah I want to be better with money and start saving.” Instead, it should be something like this:
One year from today, I will have paid off $15,000 of my credit card debt. My current monthly payment is set at $800. Therefore, I will need to make an extra monthly payment of $450 to make my goal of paying off an extra $5400. I will do this by:
|Cutting cable by||$ 540.00|
|Reduce Food/Entertainment by||$ 2,400.00|
|Cut Getting Nails Done||$ 720.00|
|3 Less Hair Cuts||$ 180.00|
|Use Tax Return||$ 2,000.00|
Set yourself up financially. Get obsessed. Be weird.
You will thank yourself 10-20-30 years from now. I promise you!
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