For most people, your 20s are a time for enjoying yourself and for figuring out who you are. You’re not alone if you feel all over the place and you’re unsure of where to go next. In these cases, having clear financial goals is even more important as they can act as a tool to guide you through these years. Fort Myers based, Mike Hainsworth, former CEO of Hainsworth Wealth Advisory, understands that your goals will be different depending on your current situation and where you want to end up, therefore, he gives these five financial goals as the perfect place to start with your financial future.
1. Make a budget and stick to it:
There’s no doubt you’ve heard this before, but there’s a reason why budgeting is constantly drilled into people. Having a strong understanding of what your income and expenses are is the essential foundation for financial security. Making a budget doesn’t have to equate to restricting yourself.
For at least a month, track all your income and expenses. You can find templates for Excel and Google Sheets or set up a spreadsheet on your own. There is also a range of apps you can find in the App Store and on Google Play that will help you budget. Some apps even help you track and categorize your spending automatically based on your banking activity.
Then, you’ll be able to see exactly how much money is coming in and what type of purchases you make throughout the month. After this, you’ll want to outline a budget. See if there are areas you can cut down on such as with getting food delivered and taxis. Consider how much money you want to be saving and what your priorities are.
Typically, it would be easiest to have a budget based on how often you get paid. For instance, if you get paid monthly, you would have a monthly budget. However, you might also want to base it on how regular your bills are. In most cases, a monthly budget is the most convenient method.
2. Use sinking funds:
When analyzing your budget and thinking about what expenses you have, you might realize that there are some larger expenses that either come up unexpectedly or only a few times a year. For instance, you might pay for your hair to get done every couple of months or you want to enjoy a holiday at the end of every year.
In these cases, creating a sinking fund will prevent your wallet from taking a huge hit whenever it comes up. For example, it might cost you $300 to get your hair done, but you only need to get your hair done every 6 months. In this case, you would want to have a sinking fund where you can put $50 away every month. That way, the expense would be spread across several months rather than creating a huge dip on one.
3. Pay off debt:
Most of the time, paying off debt should be a massive priority. This is especially the case for revolving debt such as credit card debt. Usually, credit cards have an extremely high interest rate. The longer you hold onto credit card debt, the more the interest you owe. If possible, it’s best to avoid credit card debt altogether. Don’t spend money you don’t have!
As a side note, it shouldn’t always be your aim to pay off debt aggressively. In some cases, it’s actually better to take things slow. For instance, if you have student loans or maybe even a mortgage at a lower interest rate, it could be better to prioritize saving or investing instead. The returns from saving or investing are potentially higher than the amount you’d save in reduced interest payments.
4. Have a 3-month emergency fund:
Now that you know all your expenses, it’s time to figure out how much you would need for an emergency fund. This involves calculating how much money you would need to survive at the bare minimum. Multiple this by three and aim to have this amount saved. Having an emergency fund will help you feel financially secure and will act as a cushion in the case that you lose a source of income.
5. Take control of your retirement fund:
The last thing you should do in your 20s is to take control of your retirement fund. You might think it’s too early to worry about retirement. However, it’s important to remember that the earlier you get your retirement fund started, the earlier you can retire. In many countries, your retirement is up to you to manage.
In some countries such as Australia, having a retirement fund is compulsory. Your employer must put 12.5 percent of your income into your superannuation account. Even in these cases, it’s vital that you keep all your money in one place. Additionally, the fund that your money ends up in can dramatically impact the returns you can make over decades of employment.
The way you manage your finances in your 20s will definitely impact how easy it is for you to achieve financial goals in your 30s, 40s and onward. Furthermore, it’s a great idea to hone in on exactly what you want. Though these five goals are a place to start, making more specific goals is also important. For instance, you might want to save up for a home loan deposit or build an investment portfolio of $50,000. Don’t be afraid of making a massive goal!
Read Also:Tags: Financial Goals , Mike Hainsworth