In this article, we will explore 8 different ways to be financially smart in your 20s. The actions you take in your twenties can significantly impact your financial future. Here are 8 money moves you can make to set yourself up for success.
Taking steps sooner to manage your financial affairs will set you up for success later in life, but it will also help protect your hopes, dreams, and goals when life throws you a curveball. in your 20s, you have time on your side. This is such a very huge advantage when it comes to personal finances and even planning ahead financially.
Most of us did not have sterling financial role models while growing up, and we had to learn on our own, largely the hard way: by making expensive mistakes.
But with some forethought and direction, you can skip most of the mistakes that your peers made by starting these smart money moves, and you will find better footing in all areas of your life, not just your finances.
8 Ways to be Financially Smart in Your 20s
Here we have outlined different ways to be financially smart in your 20s
1. Build a Positive Credit Rating:
Using credit wisely and also conservatively is the best way to build up a good credit rating; example, one credit card with a low limit that is paid in full when the bill comes; a cell phone on a contract that is paid as agreed; and also a modest car loan with regular payments made. These are ways one can build up a solid credit rating that positions you well enough to borrow more when the time comes.
A favorable credit rating is important when it comes time to purchase a home or apply for a business loan. You may have more on your credit report as a young adult than you think. While you are not in repayment, student loans are reported as a lump sum. Once you start repayment, your credit report indicates whether you made your payments as agreed and on time.
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2. Do Not Get Carried Away- Wanting It All Right Now Comes at a Price:
There is actually nothing wrong with “wanting it all,” but “wanting it all right now” is where the problems begin. Take moving out into your first “real” apartment. It is a milestone for every young adult and their parents to look forward to. If you have an expectation of moving out and staying alone with all the comforts of home, always keep in mind that your parents started with even much less than you have gotten used to now. Don’t get carried away by a lifestyle you can’t afford. Always Start with modest accommodations, well-used furnishing, and money left for emergencies.
3. File Your Income Taxes:
Filing your income taxes is also part of a smart money management strategy, though there are countless excuses for why people don’t file. Most people in Canada actually get a tax refund when they file, which is money they can put towards their financial goals.
Here are three more reasons why you want to file:
- When you file taxes, you begin accruing contribution room for your RRSP. This room is required the following year to make your contributions and also to pay less income tax.
- You may also qualify for tax credits and also income-tested benefits based on your declared income, e.g., the GST refunds.
- Again, the federal student loan interest is tax-deductible when you file your income tax return.
4. Go Through the Process to Find Out How to Live Within Your Means:
Before living within your means, you need to figure out what your means are. Create a realistic spending plan by using an interactive budget calculator, which helps you make adjustments to your budget until it is balanced. Track your expenses to get exact details on your spending habits and adjust your budget accordingly. Ensure that you are saving for long and short-term goals and also developing positive money skills and habits. Once your budget is well balanced, and you are not spending more than you earn, you are actually living within your means.
5. Choose Friends $ and partners Who Share Your Money Values:
Living within your means also means choosing and selecting friends, especially a partner, who share your values. Splurging periodically is different from living a lifestyle based on low monthly payments. If your friends routinely spend more than you are comfortable spending, get yourself new friends who share your money values and support your financially savvy lifestyle choices.
6. Compound Interest is Like a Financial Magic- Invest and Watch Your Show:
A young person starting with a job that does more than cover living expenses only is in the ideal position to develop a solid savings habit. The sooner you begin saving, whether in a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA), the longer you will take advantage of compound interest.
Money saved up in your 20s and 30s adds up more by the time you retire than the same saving amount in your 40s and 50s. So Start small, saving little from each paycheque for long-term financial goals; increase how much one saves as their income goes up.
7. Collect Your Benefits:
There are a lot of things involved with becoming self-sufficient, and some of these things revolve around a first “real” job. Young persons who have finished school or are past their mid-twenties are often no longer eligible for extended health and dental benefits via their parents’ employers. It is essential that once you are on your own, you become very familiar with your own employer’s benefits and policies because every workplace has different coverage.
Utilize dentally and also the extended health benefits for everything from continuing education course reimbursement, travel medical coverage, help to pay for contact lenses, prescriptions, or dental work – all will add up and can put money into your wallet if you know where to look.
A very big benefit to look out for is if your employer offers an RRSP matching program. Ensure to get the maximum benefit from it if they do; it is like free money, an instant return on your investment.
8. Pay Off Your Debts and Resist Thinking That Debt is Normal:
Paying off debts is one of the ways to be financially smart in your 20s; being in debt has become a normal way of living, and the urgency to pay off education debts, including student loans, credit cards, and even personal loans, becomes less as time passes. But the truth is that the fund you need to repay your education debts will hold you back from other goals and pursuits.
You might think that you will make bigger payments when you start earning a higher income, but the longer you stay out of school, the more vital other opportunities and commitments become, and the harder it will be to pay for the past. Ultimately, it is a smart money move to deal with your debts in your 20s and start your 30s ready to invest in your future.
Making smart financial decisions in your 20s has long-term benefits that can help one achieve future financial success. If you follow the 8 ways to be financially smart in your 20s listed above, you can be guaranteed a better future.
Let’s have your view on the ways to be financially smart in your 20s discussed in this article.
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