This week as I enter a new decade in my life, I reflected on my twenties in terms of what I did right and where I left room for improvement when it came to money management. I have a few tips for you twenty-somethings.
Live like a cheap college student as long as you can. When you graduate from college and start making a few bucks you have the urge to buy new, nicer things. Resist it. Be creative. Most of the furniture in our home office is stuff given to us that I spray painted black. Up until two years ago, our bedroom furniture was my husband’s childhood bedroom set. We got by just fine until we paid cash for a bedroom set we’ll keep forever.
Stay Out of Debt! With the exception of a home mortgage, do whatever you have to do to stay out of debt. If you can’t pay cash for it, you can’t afford it, period. One of the best money-management things we have done is becoming debt-free (except our mortgage) before we turned thirty. Unlike many Americans I sleep easier, have less stress, and a happier marriage. I’m not fighting over money, or strapped down by a payment.
Your twenties are the most important years of your retirement savings. Retirement is the last thing on your mind in your twenties, but it should be the first. At this time in your life, interest is on your side. Most people don’t get that whatever you can manage to invest while you’re in your twenties has the most time to grow. All the time I hear, “I can’t afford to save for retirement now.” Actually you can’t afford not to. Our investment adviser gave us the rule of that if you invest $27,000 toward retirement by the time your twenty-seven years old you will have a million dollars when you retire.
Set up a Roth IRA right now. Hopefully you realize you need more than your work 401(k) to retire. The first thing you want to get is a Roth IRA. It’s a tax-free investment, so it grows tax-free, and you won’t be taxed when you withdraw at retirement. My husband and I both have one. Each month we have money automatically withdrawn from our checking into it, just like our other expenses. By automatically withdrawing the funds we never miss it and it’s treated as another monthly expense.
Avoid car payments. Contrary to popular belief, having a car payment is not something you have to have. Just because you can doesn’t mean should go buy a new vehicle. I cringe just thinking about all that interest people pay on vehicles. You can get a decent vehicle for around $10,000. This will easily get you through your twenties. When you don’t have a vehicle payment, you can withdraw money as if you did into a savings account and pay cash for the next one. I say this from experience. I bought a brand new GMC Acadia two years ago and it’s paid for now. I absolutely love my vehicle, but shouldn’t have bought a brand new car. That money (and interest) I paid for two years could be sitting in my new-home fund right now. Even purchasing a vehicle that’s just a few years old saves a lot of money.
Get money mentors. Find people who you admire or look up to when it comes to how they manage their money. Ask them for advice or what has been successful for them. Keep in mind many of the people with all the nicest things are often the ones farthest in debt and the least financially secure. Seek out people who have made good decisions and have similar goals as you.
Keep you standard of living under control. The more you make the more you have to spend or so you think. Since my first job right out of college, I make twice what I did then and my husband, three times what his first job paid. You’d never know it. We still live in the same house and except for the mistake of buying a brand-new vehicle we really haven’t changed the way we live or save. The longer you can keep your standard of living down, the faster you can accomplish your saving goals for the purchases you truly want.
Have at least 20 percent down if not more when you buy a home. A bank will approve a home loan for way more than you can actually afford. Just because they’ll give you that much money certainly does not mean you should take it. Life it too short to be stressed out with a mortgage you can barely make. Do not get a second mortgage either. We fell into that trap. If we’d had a little patience and waited another six months to a year, we could have easily made the down payment, avoided a second mortgage and the higher interest rate that went with it.
Read. Educate yourself on money. It’s overwhelming to get married, start your own household, or buy a house. Read everything you can to make the best choices. Magazines, books, and the Internet are all great resources. My husband and I both read the same books and that helped us be on the same page when it came to money. A couple I recommend: Total Money Makeover and The Millionaire Next Door.
Have goals. You can’t get where you’re going if you don’t know where your going! You may have career or personal goals and you should have financial goals too. If you want a different vehicle figure out how much you need to save a month to get there. I’m currently saving to build a new house and have a savings goal in place for a down payment. I have photos of homes I’m interested to keep me on track and motivate me. Each time I’m tempted to divert from savings I look at the photos to keep me on track.
Utilize Coupons. I wish I would have know about couponing ten years ago. Much of our financial success has come from not our income, but controlling our expenses through coupons. You can drastically reduce your expenses when you get things for free and pay at least 50 percent off the retail price. We’ve found this small time investment has paid us large returns in savings.