Financial Focus In Your 20s – Part 1
Twenty-somethings have the whole world before them: careers, relationships, families, homes, and maybe even a little adventure. But twenty-somethings also sometimes lack the perspicacity to see just how much progress they can make financially with a little planning. Tell a twenty-something to start saving for retirement and you might be rewarded with a look of horror. Retirement! Geez, I haven’t had any fun yet and you want me to start thinking about retirement? Suggest a twenty-something buy some insurance and you’ll likely be scoffed at. Offer twenty-somethings some strong advice on debt repayment and you may hear, (said in a smoky drawl) “Everybody’s got debt, man. Chill.”
The thing about twenty-somethings is that so few of them can imagine being forty-somethings. Just out of school with the smell of pub-night still enveloping them, they’re often about trying to figure out the most basic of life’s rules like getting the rent paid on time. Or they’re focused on getting some of the good stuff they’ve been doing without while in school, like how to swing the payments on that snappy new convertible.
You can spend your 20s doing yourself some real damage – buying cars you can’t afford, swapping cell phones and plans every time a new bell or whistle blows, racking up all those credit cards that keep coming through the mail slot. Or you can spend your 20s laying the financial foundation for the rest of your life. If you’re of a mind to get off to a good start, here are some things to keep in mind.
1. Learn to live on what you earn. If you look around at all the people who can’t cope with their lives, very often it is because they’ve gotten into the bad habit of spending more money than they make and bridging the gap with credit. While credit cards and lines of credit seem to be a great way to have what you want now and pay later, the costs in terms of both interest and flexibility are huge. Learning to spend only the money you have already earned may be a tough lesson to swallow when your friends are off partying, buying snazzy new clothes or taking that vacation you wish you could take too. But learning to live on what you earn is the mature thing to do. If you want to be solvent – not in debt – then you must learn to spend only the money you have, and not the money you hope to have somewhere down the road.
Living on what you earn is the most fundamental of financial tenants. Without mastering this, little else is possible. And it’s not as hard as most people think. It does mean making sure your fixed expenses – things like your rent, your transportation costs and your debt repayment aren’t too high relative to your income. Once you’ve got your fixed expenses in check, the next challenge will be to ensure your variable spending – food, entertainment, clothes and the like – don’t end up out of control.
Hey, if you want to steal from Peter to party with Paul, that’s your biz. You can forgo clothing this month and next month and the month after to drink beer and eat wings, but eventually you’re going to need a winter coat or a new suit for work. So think before you drink! Am I going to need this money for something really important? If the answer is “no”, then booze it up all you want with your buddies. If the answer is “yes”, what else are you going to have to give up later on to rebalance?
Financial Focus In Your 20s – Part 2