Even when you're in your 20s, burdened with student-loan debt and earning an entry-level salary, it's still possible to make savvy financial decisions that will positively impact the rest of your life. Katie Kiihnl, an associate with Atlanta-based law firm Boyd Collar Nolen & Tuggle, is proof of this.
As soon as Kiihnl graduated from the University of Memphis School of Law, she did something rare among 20-somethings: She met with a financial planner.
"There are a ton of financial advisers out there who have smaller firms and who would be happy to work with young professionals, even when these young people don't have a lot of assets," Kiihnl says. "This was the best move I could have made. Meeting with a financial adviser at a young age helped me form my financial goals. I've followed them ever since."
Want to make smart money moves in your 20s? Then follow Kiihnl's advice: You need to start saving, budgeting and paying down debt early in your career. When you boil it down, taking a proactive approach is what being financially savvy 20s-something is all about.
Here are five smart habits that wise 20-somethings use to keep their finances in order.
Smart habit No. 1: Prioritizing debt reduction
Kiihnl's financial planner gave her an important lesson: The best move that 20-something professionals can make is to pay down their student-loan debt as quickly as possible.
"Put all your money into paying down your student loans before you look at investing," Kiihnl says. "Focus on your debts."
Kiihnl left law school with $80,000 in debt. She worked out a plan with her financial planner that will pay down this debt in five-and-a-half years. That's significant: During this time, Kiihnl will pay $20,000 in interest. That's a lot, but it's not nearly as much as the $75,000 in interest she'd pay if she instead only made her minimum student-loan payments each month and carried her loans to their full terms.
Smart habit No. 2: Taking their budget seriously
Rachel Cruze, a financial speaker and author based in Franklin, Tennessee, says that smart 20-somethings learn early on that they have to live on a budget.
"Too many 20-somethings don't live on a budget," Cruze says. "Their paychecks come in and their money goes out. They have no control over the money. They think that living on a budget means that they can't have any fun. But what smart 20-somethings find is that they have more fun if they have some control over their money, some boundaries in place."
Why? If you live on a budget, and you follow that budget, you can spend money without guilt or shame.
Smart habit No. 3: Using credit cards to their advantage
There is nothing wrong with using credit cards. Using credit cards wisely helps 20-somethings build a strong credit score.
Michael Meese, chief operating officer of the American Armed Forces Mutual Aid Association in Ft. Meyer, Virginia, says that too many 20-somethings build up massive amounts of credit-card debt. That debt comes with high interest, and can prove a financial burden as 20-somethings move into their 30s, 40s and beyond.
"With all the credit-card applications you get in your 20s, it can be easy to get into trouble," Meese says. "Smart 20-somethings realize that they don't have to use all the credit they get. They have the perspective that they need to save up for the things they want. They don't just charge what they can't afford today."
Smart habit No. 4: Getting a head start on retirement
Retirement seems a long way off when you're in your 20s. But you should start saving for retirement as soon you start working. If your company offers a 401(k) plan, you should participate. Even if it doesn't, you should set aside a portion of your paycheck -- even if it's a small amount -- for your retirement years.
"The way retirement savings goes is, 'the earlier, the better,'" says Jim Poolman, executive director of the Indexed Annuity Leadership Council.
You might think it makes sense to wait until you're earning more money. But, as financial professionals will remind you, as you get older, your costs of living rise too. You might start a family or take on a mortgage. There's never a perfect time, then, to start saving for retirement.
Poolman says that smart 20-somethings start saving for retirement, and enjoying the benefits of compound interest, as soon as they enter the workforce.
Smart habit No. 5: Building an emergency fund
Bad things happen, and often these bad things require a quick infusion of cash. If you don't have an emergency fund built up, you could easily fall into debt should you suffer a car accident, get injured at work or have to replace your home's water heater.
And what if you lose your job? If you have an emergency fund, you can tap those dollars to help support yourself while you search for a new job. That fund might keep you from running up credit-card debt while you're hunting for new work.
That's why Kiihnl says that 20-somethings need to steadily build up an emergency fund that can cover up to six months of their expenses. This isn't easy, and it takes time. Kiihnl says that her goal has always been to put 10 percent of her income into a savings account to cover unexpected purchases.
"I've done that ever since I graduated," Kiihnl says. "Sometimes you can't do the whole 10 percent. But you should always put something in that account."
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