When you’re growing up, a decade seems like an eternity. As you age those years start going by faster and faster – something you typically don’t notice until you hit 30.
As much as twentysomethings like to assume they’ll be 25 forever, age catches up to everyone. If you haven’t started creating a foundation for financial success by the time you turn 30, you’re going to be playing catch-up well into middle age.
Even if none of your friends are considering their financial future, you can be ahead of the curve by accomplishing some simple goals in your 20s. Here are some lessons people usually end up wishing they’d learned before they hit 30.
Pay Off Student Loans
Almost 50 million Americans have student loan debt totaling more than $30,000. No matter what your balance is, the best thing any twentysomething can do is pay off their student loans before they reach 30.
The faster you pay off your loans, the less you’ll pay in interest. Plus, getting rid of your student loans will free up your budget to house, an extensive vacation or a new car.
Paying your student loans quickly requires focus and dedication, but it can be done. Keep your expenses low, allocate extra money toward your debt and always pay more than the minimum every month.
Even a little bit extra can make a monumental difference. If you owe $30,000, are paying 5% interest and add an extra $25 per month you can pay off your loans a full year early. An extra $50 would shave two years off your repayment plan.
Start a Retirement Account
Twentysomethings have a reputation for only caring about what’s currently going on instead of focusing on the future. They might assume saving for retirement is something to focus on later, instead of a step they can take now.
The main reason young people should invest as much as possible at a young age is something called compound interest. Compound interest rewards those who save the longest rather than those who save the most, by feeding that interest back into itself – leading to more and more interest over time.
For example, if you start saving $50 a month now, you’ll have $166,296.17 in 40 years, with 8% growth. If you wait 10 years to start, you’ll have to save $119 a month to reach that same sum.
You can start an account with your company’s employer-sponsored retirement plan or by yourself with an IRA. Experts suggest contributing between 10% and 15% of your annual income, but it’s better to start now with 5% than wait until you can afford 10%.
Save an Emergency Fund
One of the most valuable lessons you can learn in your 20s is how to take care of your own financial emergencies. Maybe you could rely on your parents to bail you out in college, but now it’s time to become truly financially independent.
An emergency fund can help you pay for a car accident, ER visit or last-minute flight for a family funeral. Having at least $1,000 tucked away can pay for these eventualities and others, like a hotel stay if the heat goes out in your apartment or a new tire if you run over a nail.
If you work for yourself or in an unstable industry, you should have at least three month’s worth of expenses saved up. Some people even save for six months if they want the option of taking an extended leave of absence from their career.
Keep your emergency fund in a savings account and only use it for unforeseen events – not tickets to see Beyonce in concert.