How to Manage Your Finances in Your 20s. 11 Tips For Young Adults

how to manage your finances for young adults

Learning the importance of financial responsibilities as soon as possible is essential to start building a solid foundation for your financial future. Financial choices made in one’s 20s might have far-reaching consequences.

This is why it’s crucial to start forming good money habits early in life, so that you can reap the rewards later on. You can avoid taking on too much debt, save for the things that matter to you, and take advantage of compounding by learning to budget and invest in your 20s.

Below Are 11 Tips on How to Manage Your Finances in Your 20s

Start this Life-long Journey by Assessing Your Financial Situation

In your late teens and early 20s, you will learn more about who you are than at any other period in your life. It is a good idea to start learning about your finances at an early age too.

You can learn a lot about yourself and the most important things by asking yourself questions and reflecting on the answers. The same holds true for our financial situations. Recognizing how you feel about your present financial circumstances can provide valuable context for planning how to achieve your financial goals.

Start by Asking the Following:

  • How much income do I bring in?
  • Can I afford to start meaningfully investing?
  • Do I have an emergency fund?
  • Are there any financial risks that can threaten my goals?
  • Do I need to buy something expensive in the next 2 years?

You can come up with other questions that are specific to your financial goals. Answering these questions may help you build a plan to harmonize your financial situation with your goals.

MANAGING YOUNG ADULT FINANCIAL

Set Financial Goals

Early 20s is normally a fast-paced period for most people as you may already be in college or moving out of your family home for the first time. You find that you don’t know how to do most things, like writing a check and so on. But most importantly you start to encounter serious financial situations. If you do not set financial goals, you are most likely going to remain dependent on your parents for a long time or run into serious financial problems. Here’s how to move out of your parents’ home as a young adult.

In your 20s you are faced with serious economic demands. For instance, you may get kicked out of your parent’s health insurance when you turn 26. Or, become overwhelmed by bills you didn’t know existed when your parents paid for them. Or even worse, get kicked out of your parents’ home, unprepared.

To set goals, think about the following items:

  • Your income
  • Your living expenses
  • Your investments
  • Your savings

Financial independence entails establishing long-term objectives so that you can live a comfortable life. Also, so that you do not encounter any financial upsets no matter the situation, and so you end up exactly where you want to be in your financial future.

What is the 70/20/10 Rule in Finance? Know and Use This

The 70/20/10 rule suggests dividing your whole cash flow into these three percentages. In other words, you can use 70% for living expenses, while 20% is put towards savings and/or investments. You can use the remaining 10% for repayment of debt, or for giving back.

While I personally find this rule lacking, since I prefer to put more than 20% into savings and investments and reduce the expenses. I believe that the 70/20/10 rule gives young adults a good structure for managing their finances. Just know that the 70/20/10 rule is not a rigid rule but a guide and adjust it to fit your personal circumstances.

You can start saving for your retirement, a down payment on a home, or a trip. You can also save for a rainy day, as the saying goes, by setting up an emergency fund.

If you divide your income this way, you’ll find it much easier to control your spending, manage your debt, and put money away for the future.

If You Haven’t Already, Get a Job

Being a young adult can sometimes be daunting. You have to deal with school, and expenses are everywhere. But it is essential that you have an income.

The goals is to be able to cover your expenses, and make enough money to invest, and save as well as for miscellaneous activities. This means that if you are not already working you should be. If you are not making enough, you should have a plan to do so, or get additional training.

Some young adults don’t have a job but have paid internships. Others may still be dependent on their parents or living off school loans. Some are engaged in job-hunting, but with an inadequate portfolio, they are not finding meaningful work.

Start Investing or Other Side Hustle

For most young adults, successful investing is a game changer. If not done properly, you may also lose money and become discouraged. If you could understand the power of investing, and how it could help you earn passively but unlike a savings account, meaningfully, you will probably take that necessary leap everyone eventually makes.

Make use of all resources available to you. I found a lot of great YouTube videos that teach investing.

Starting a side-hustle these days is a norm. It is usually difficult to find individuals (even at the top of the earnings ladder) who are doing some work on the side. Realistic side hustles, sometimes take over the jobs. One option is to begin a flexible business, such as blogging, freelancing writing, content marketing, digital marketing, social media marketing, or selling stock photography. There are so many things you, as a young adult could do to increase your earnings and help you reach your financial goals.

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Create a Realistic Monthly Budget and Stick to It

One way to keep track of one’s income and expenditures is to have a meaningful budget. You can have a month, weekly, or bi-weekly budget. A monthly budget is typically the norm.

Where you can estimate your monthly earnings and savings, put it all into a spreadsheet so that you can see your overages, and where you did not meet your goals. Your monthly expenditure will be more manageable if you see it broken down like this.

The next step is to design a strategy to achieve your goals. You’ll need to monitor your spending closely if you want to keep your budget intact. Budgets should be reviewed regularly. Timely adjustments to your budget can help you get where you want to be far more quickly.

Set Up a Fund for Emergencies

It’s crucial to set aside money in case of unexpected circumstances. Consider it a cushion for the inevitable blows of life that will save you from piling on further debt. The recent coronavirus outbreak has dramatically highlighted the value of having a savings cushion to fall back to in times of disaster.

Stop Incurring Debt

Creating a budget and sticking to it can help you avoid going farther into debt. It is also essential to stop accumulating more debt. Paying off the debts with the highest interest rates and fees first will minimize the total amount owed if you have many bills to pay.

Start Paying Off All Debt

Paying more than the minimum on your debt each month is wise to speed up the payoff and save interest. Regularly paying more than the minimum payment on your loan is the key to getting it paid off faster. You should pay off the debt with the highest interest rates first.

Avoid Recurring Debt

Any payment spent on servicing the recurrent debt obligations is referred to as “recurring debt.” It’s something you should avoid at all costs.

One known way of incurring debt is by signing up for subscriptions. This business strategy works so well for the companies you are subscribed to, as most of the times, they don’t even have to deliver any value after you are signed up, as most people forget they about half of their subscriptions and do not make use of them. But the fact remains that your card will be charged every month or quarter or year (according to the terms of your subscription).

Even if you think that the amount you are paying on a subscription is so low, if it is something you can do without, cancel it. You will be shocked at how much money goes back in your pocket.

How to Manage Your Finances in Your 20s

Track Savings, Spending, and Earnings

There is a reason why large organizations are always running reports. This is because it helps them analyze their goals, and how close they are to getting where they are going.

Treat your finances like an organization would theirs. Keeping a close eye on your earnings and expenditures is essential. Keeping a record of your spending might help shed light on how you ended up in debt. Where you are wasting, how much you are making, what to invest in or not, and so on. Your debt-prevention or elimination plan will benefit significantly from this insight.

A Few Final Words

Knowing how to manage your finances in your 20s is essential to your successful and balanced living. You must be intentional with your finances and doing so at an early age is not just a great habit to form but will ensure that you meet most of your goals in life as you will be able to afford them.

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Christine Udeani, JD
Christine Udeani, JD

Christine is a dedicated mother of six young adults and a teenager who has made significant contributions to the online world through her writing and entrepreneurship. She attended Northwestern University, Strayer University, Thomas M Cooley School of Law, NWCULAW, and holds degrees in business, Law, and Communications. She shares tips and experiences to help young adults and their parents with this generation’s issues.

Find me on: Web | Twitter

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