The following is a post by MPFJ staff writer, Jeff.  Jeff writes about reducing waste, saving money and building freedom at his website, Sustainable Life Blog.
I have recently turned 30, and since this happened I’ve been looking over my finances and thinking about where I was when I started my 20s, and where I am now and if I would have done anything different. Given that you’re so used to living a very cheap life in your early 20s and progress in your career (and earnings) typically increases. This affords many options for people, and expenses typically go up as your age increases and you stop living like a student.
Here are the things that I think are most important to master when you’re in your 20s to set yourself up for a good financial future.
Contribute Up to the Match of Your 401k as Soon as You’re Able
This is something that is vastly important for two reasons.
The first reason is that if you don’t contribute up to the max your employer offers to match you’re turning down free money. It’s as if someone was handing out ten dollar bills and you decided to walk by and not take as many as they were willing to give to each person!
Huge mistake. If you start your first job at a modest 40k per year and your employer matches your contributions up to the first 3%, that doubles your investment from 1,200 to 2,400 bucks in your first year.
The second thing you’re missing out on is the compound interest. There are some calculators here to figure out how much money after you have let your interest compound over years and years, but needless to say it’s a lot.
I’m sure you’ve heard the story of the 2 people saving for retirement, and one person puts away 3k per year from 22-30, then nothing until 65, and the other person that started putting away 10k per year at age 30 all the way until 65, and they both about have the same amount of money when they finish at age 65.
Pay Off All Consumer Debt
Debt will do nothing but handicap you as you continue your financial journey. Paying off all debt incurred in college on credit cards will free up a lot of space in your budget, as well as allow you to build up savings for emergencies and further advancing your goals. Instead of paying someone else interest money, you can use your spare cash to earn it. Paying off debt includes all non-mortgage debt: credit cards (pay these first), student loans and car loans.
Yes, student loans are a big deal and many people are leaving college with high balances, but you’ve probably been living on less than 12,000 per year for your entire life. Keep in the same mindset and focus all of your energy and extra money on buying your freedom from debt. I paid off the last of my student loans right after I turned 29, and it allowed my huge amounts of freedom.
Build a 6 Month Emergency Fund
As they said on Forrest Gump; “$hi# Happens”, and you can bet that at some point its going to happen to you. You’ll never know when or how much it’s going to set you back, but you’ll want to make sure that you’ve got the cash to cover it instead of falling back on your credit cards and paying huge amounts of interest to bail you out of whatever issue you’re in.
You wont know what you’ll need, but here are a few things you should cover: your health and car insurance deductible amount, at least 3 months of bare bones living expenses, and if you have any special conditions you should account for those as well.
How about you all? How many of these did you hit before your 20s ended? Can you think of other things you should do before you turn thirty to help with your financial journey?
Share your stories by commenting below!
***Photo courtesy https://www.flickr.com/photos/ky_olsen/5145374771/
