Tired of being financially dependent on your parents and want to build more security by establishing your financial independence in your 20s?
Many 20 somethings don’t know much about personal finance because they were never taught in school on how to manage their money. You learned many subjects you will never use after graduation, but you don’t know basic survival skills.
You can get ahead by doing what others aren’t doing during your 20s. If you prioritize your financial wellness now, it can save you headaches later down the road if you have kids, want to buy a house, or have enough to retire.
Note: I am not a financial expert or advisor, this is just advice based on my experiences in my 20s. Go to a professional for financial advice on your personal situation.
Get a job with stable income
Getting a job is the first thing to start out with. Your first job is likely not going to pay well. But even in a lower paying job, you can find ways to build wealth.
Track all the skills you learn and achievements you made in your jobs. This is what you’ll be able to use in future interviews. I regret just going to work and not tracking the quantifiable achievements I made. This has a major impact on how much money you can make in the future.
Employers care a lot about your achievements and how you can bring those same results or more to their company.
Create a realistic budget and track your expenses
You may hear people say to do the 50/30/20 rule. Putting 50% of your income towards needs, 30% towards wants, and 20% towards saving or paying off debt. This budget doesn’t work for everyone, especially if you are living in a high cost of living area with lower income.
Find a budget that works for you and try to stick towards it. It’s important to review your expenses every month. Sometimes you’ll find that you spent too much in one category like eating out.
If you look at your expenses, you can find what you’re wasting money on and allocate more towards investing in yourself.
Build 6 months of emergency savings
During a recession, this is the most important thing to have in case you lose your job or you have to pay an unexpected expense. If you have low-income, this can be difficult to build. I can understand because I also have low-income.
I’m only 27 and pay the living expenses for 2 others also in my household. Sometimes it is very difficult, but the focus has to be on finding ways to increase your income to put more into savings.
I took affordable online courses, watched free videos, made a blog, and worked on improving my skills at my job. Because of this, I was able to significantly increase my income. So now I’m able to build an emergency savings.
Study personal finance
Make it a daily or weekly habit to study personal finance. I like to listen to podcasts, read blogs, and read books. I never thought of taking courses too like investing for beginners.
The only way you can build massive wealth is by teaching yourself what most people don’t know. I was sitting at my desk in a small nonprofit and everyone was registering for retirement accounts.
Everyone was so confused on what to choose and just picked what they thought was a good investment without the knowledge. Can you imagine how much money you would lose out on if you don’t know how to build your portfolio?
This is why I’m trying to study more. I come from a family that lives in deep poverty. No one in my family knows how to invest.
Related Article:
How to Recover From a Generational Poverty Mindset
Learn how to negotiate your salary and benefits
Out of all the companies I interviewed with, all of them tried to lowball me. This showed me I need to come prepared to properly negotiate because these employers don’t care about your financial wellness. They prioritize the needs of the company.
Benefits that you can negotiate for are PTO, a professional development budget, working on a hybrid/remote schedule, etc.
Women earn 82 cents of every dollar men earn. It’s even more important for women to negotiate their salary because of this. The longer you don’t negotiate, the more income you potentially lose.
Job hop if you’re not happy with your work and are underpaid
Are you paid significantly lower than others with the same job duties? Don’t just look at your job title because it varies from company to company. Look at what tasks you’re assigned.
A lot of companies will give you a lower title, but give you the responsibilities of a manager just so they don’t have to pay you much. Take those skills that you learn and go apply for higher paying jobs that require the skills that you have.
I did this and was able to get a job that paid 65% more. It taught me that you should never stay loyal to a company because they’re always trying to reduce costs. You need to put yourself first.
Diversify your credit
It’s not enough just to have one loan or credit card. It’s better to show lenders that you can handle multiple accounts.
Don’t excessively open accounts all at once because those hard inquiries will damage your credit. Space opening accounts out. The types of accounts you can open are credit cards, personal loans, student loans, car loans, etc.
Only open what you can financially pay off. Not paying off your debt will hurt your credit score. If your account closes, that will be on your credit report for 7 years which will look bad to lenders.
Increase your credit score
You will qualify for more things if you have a good credit score. This will help you move out your parent’s house, buy a car, and open credit cards with better rewards.
To increase your credit score, you need to pay off all of your debt on time and keep your credit utilization low. Don’t spend more than 30% of the amount that you can spend because it looks risky to lenders.
Increase your net worth
Prioritize saving, paying off debt, and/or investing before you pay for other things. The goal is to increase your assets and decrease your liabilities.
Prioritize paying off the high interest debt off first because it will be easier to increase your net worth when your debt isn’t significantly increasing.
Avoid lifestyle inflation
Most of your peers want to buy a nice car, luxury clothes, etc., more than what they can comfortably afford. If you can’t afford it and don’t have enough for saving enough, don’t do it.
When your income increases, you should pay yourself first by increasing the percentage of your income that you put into savings. Saving, investing, and paying off debt should be your priority.
Most of the time the value of material things like new cars and clothes lose their value over time. Don’t move into a nicer apartment because you got a sudden boost of income. Make sure you have emergency savings first in case you lose your job.
Open a Retirement Account
If your employer offers a match, try to put at least the same amount to get the full match. As your income increases, the amount you put towards your retirement should increase too.
If you want to retire faster, then deposit more of your income. Calculate how much you want to have in retirement and how much you need to invest every month to get there over the years.
The more you can increase your income, the more you can invest. That’s why your 20s should be focused on skill-building and networking so you can apply for higher paying jobs.
What other tips do you have to establish financial independence in your 20s?
