Money in your 20s: 5 Things Everyone Should Know

I am participating in the first annual Women’s Money Week, a project to empower women to take control of their finances.   Today's topic is Money in your Twenties/Thirties/Forties/Fifties/Retirement. Check out the Women's Money Week 2012 website for more posts from some amazing Women Money Bloggers!    

For some this period may represent your glory days while others may refer to it as a Quarter Life Crisis, but your 20s is a time of amazing transformation. The bridge connecting adolescence and adulthood, your 20s may bring your first (full-time) job, first love, first major purchase (ex- a new car), and first experience with recurring bills (student loans anyone?).  With all these “firsts,” it is important to make sure you are making smart choices and creating good habits to carry you through the rest of your life…ESPECIALLY when it comes to your finances.    Here are a few things that I believe everyone should know about money before leaving your 20s to put you on the path to financial security:

How to create a budget.

You have probably heard this before, but the budget is one of the basic principles of personal finance. For some, this may be your first experience making enough money to actually support yourself.  In order to manage this new fortune, you need to keep track of the money you have coming in (income), the money you have going out (expenses), and make sure that your income is always greater than your expenses.  

Avoid the credit trap!

When I was in college, there were credit card companies all over the campus offering free t-shirts, mugs, etc.  just for signing up.  In that setting I was eager to sign up for my first credit card, but luckily I refrained from actually using the card for over a year and truly considered it a tool to be used for emergencies (and the occasional tattoo—don’t judge me lol).  Your 20s is a time for establishing and building your credit. Because you probably have little to no credit already, you probably won’t have the best credit rates, so spending recklessly on your card and carrying a credit card balance from month to month means that you may face hefty interest charges.  That spring wardrobe you caught on sale might not be that good of a deal if you buy it on credit and have to pay an extra 10-20% over the course of a year.  Also, don’t mess up your credit early by applying for a lot of different credit cards, maxing out card, and missing payments.  Not only do these immediately hurt your credit score (which would affect your future interest rates on home/auto loans), but they create bad financial habits that become more and more difficult to break.

2012 Financial Goals: February Update

Save $4000 by January 2013 I contributed $210 to my savings account this month through automatic direct deposit. I also took part of my tax refund along with some of my "buffer" in my checking account and added $600 to savings, so I've already saved about $1000 so far this year!

Maintain a buffer of $100 in my monthly budget. I've really been sticking to this one, and February was almost as good as January.  By the end of the month I had an extra $650 left over after expenses and savings!

Maintain $0 credit card debt.
I used my credit card for my regular monthly expenses (grocery, gas, etc.) and paid the balance in full by the end of the month.

Open a Roth IRA

Haven't done this yet. 

How Your Mindset Hurts Your Finances: 3 Examples

“I work hard to make this money, so I’m going to enjoy it!”

It’s true, you probably worked hard to earn your money.  But think about all the hours you had to put in to earn your salary…then think about how quickly money can fly out your hands.  It only takes minutes to swipe your debit card and lose $50 on a “quick run” to Target, or to hit the checkout button at Amazon and purchase the assortment of items that you’ve had patiently waiting  in the shopping cart.  Spending money is easy-it’s quick, there are so many ways to spend it, and lots of people who get paid to entice you to spend.  Because spending is so easy to do, it is easy to get yourself in trouble by overspending, sinking into debt, and racking up credit card interest charges or bank overdraft fees.  Also, maintaining the habit of spending all your money is risky; in the event of an emergency—such as illness, job loss, or needing household repairs—you will not have the money to cover these unexpected expenses, which would then lead you into debt.

“I’ll worry about tomorrow when it gets here!”

If retirement is over 20 years away, it may not be one of the things at the forefront of your mind, but ignoring it can have dire consequences.  You don’t want to work until you are 70 years old because that’s the only way you will have enough money to survive.  There may come a time when you are no longer able to work to support yourself; the decisions you make today can affect your financial security and the quality of your life during that time.  In addition to planning for retirement and funding a retirement plan, it’s important to consider what the future economy will look like.  Consider inflation, which means that the dollar you have to day will have less purchasing power in the future.  Skimping on your retirement contributions or underestimating how much is needed in the future will leave you with an unpleasant surprise when retirement age arrives.  Lastly, procrastinating when it comes to retirement contributions—or even procrastinating about adding to your savings account—means you miss out on the benefit of time.  The earlier the save, the more time you have to make your money grow.  "Someone who puts $4,000 a year into retirement accounts starting at 22 can have $1 million by age 62, assuming 8% average annual returns. Wait 10 years to start contributing, and you'd have to put in more than twice as much -- $8,800 a year -- to reach the same goal."

source

“I can afford that, it’s ONLY $x (or $x per month)!” 

A low purchase price may make you feel better about spending your money, but make no mistake-there are more factors to consider when making a purchase.  A low price means very little if the item you get is of poor quality and will need to be repaired or replaced in the near future.  Also, the purchase price is hardly ever the “real” price of an object.  Whether it is tailor fees for a jacket, replacement ink cartridges for a new printer, or a data package for a new cell phone, most purchase require additional service charges.  Ignoring these additional costs can result in a seemingly minute cash expenditure that creates a big dent in your budget in the future.  Likewise, signing up for monthly subscriptions like gym memberships or cable services can negatively affects your budget  as you are increasing your fixed monthly expenses, leave you more cash strapped each month.   You are agreeing to regularly pay a guaranteed debt, while your future income may not be guaranteed.  The future is unknown, and in the face of an emergency, you may find yourself unable to meet these financial obligations.  There may be fees for late or missed payments, and even penalties for cancelling these services, so it is in your best interest to think long and hard before entering into one of these agreements. 

2012 Financial Goals: January Update

Save $4000 by January 2013 I contributed $210 to my savings account this month through automatic direct deposit. In the next week or so, I will transfer a lump sum ($300-500) into my savings account. Wondering where I'm going to get that lump sum? Keep reading...

Maintain a buffer of $100 in my monthly budget. I did a great job of limiting my shopping and my restaurant meals this month.  I went out to eat only 4 times this month and what shopping I did was from the clearance rack.  By the end of the month I had an extra $700 left over after expenses and savings!

Maintain $0 credit card debt.
I used my credit card for my regular monthly expenses (grocery, gas, etc.) and paid the balance in full by the end of the month.

Open a Roth IRA

Haven't done this yet. 

2012 Financial Goals

It's a new year, so it is the perfect time for a new set of goals.  I made awesome strides in my financial life in 2012, and I hope to continue that success into 2012.  Here is a list of my goals for 2012, along with ideas for behaviors that I can do to help achieve them. 

Save $4000 by January 2013

• Direct deposits to savings: Already set, with the current setting can save about $2500 without doing anything else.  May increase the amount saved each month.
• Save 50% (or more) of tax refund.  I saved a good portion of my refund last year and used part of it to pay off credit card. 
• Increase income.  This year I will be eligible for a promotion at work that comes with a 10% raise.  Also use money earned from Swagbucks (gift cards), online surveys, and credit card rewards to decrease some of my regular expenses instead of using it to buy frivolous stuff

Maintain a buffer of $100 in my monthly budget.  A few times in 2011 I went over my budget (note: I think of my savings as a bill I have to pay, so I didn’t actually spend more than I earned, just cut into the amount of money I put into savings each month).  After I build up a few months of a buffer I will transfer that amount to my savings account.

• Tell myself no when I’m lusting after an item in the store
• Limit costly restaurant meals
• Use cash when shopping for personal supplies, clothes, food, etc to make sure I stick to the monthly budget.

Maintain $0 credit card debt. 

• Pay credit card balance in full each month
• For major purchases and wedding purchases, create separate savings account/sub-account to take care of it instead of using credit card.

Open a Roth IRA

• Read blogs, books, etc to research options

What about your Friends?

"If every player in your clique is rich your clique is rugged
Nobody will fall cause everyone would be each others crutches" -Jay-Z

Like the old saying “birds of a feather flock together,” you can tell a lot about a person by looking at who they spend the most time with.  Think about your core group of friends…you shop together, eat together, and share common interests.  However, some of your bonding activities might be hurting your wallet, and steering you away from your financial goals.  The regular girls' night out at the hot downtown restaurant or the weekly shopping excursions may be fun, but once you start monitoring your spending, you may find that A) you can’t afford it! or B) it’s hard to say no to these indulgences when everyone else is doing it...after all, it's what you guys normally do! 

So what do you do now?  Decline all invites from your crew? Replace your old friends with new frugal ones? No!

September Dine In Challenge

This month, I'm challenging myself to eat more meals at home.   I originally just wanted to curb my fast food habit, but figured why not see if I could avoid all restaurants! For the month of September, I'm giving myself only 2 free passes to eat a meal that is not prepared at home (mine or someone else's lol).  And when I say free pass, I also mean that I'm only going to eat at a restaurant if I can eat for free.  September is my birthday month, so I've racked up more than a few birthday coupons giving me free items.  Now free items are good, but a free meal is even better! With that being said, I'm planning to use a birthday certificate for Steak 'n Shake that gives me a free double steak burger with fries. Also, during the week of September 6th through 10th, Chick-Fil-A is offering a free breakfast entree, so I will probably use that as my other free pass.

Hopefully by the end of the month I'll save both money and calories, and maybe even become a better cook!

Feel free to join me! It's never too late!

Guest Post: How I saved over $18K in 2011

Meet Randy, author of the lifestyle blog YoungNEducated.  Covering  everything from fitness and finances to relationships and careers, his blog is the perfect blend of intelligence, wit, and cultural commentary.   He's here to share how, in a matter of weeks, he found simple ways to save himself over $18,000 this year!

Savings Sunday 6/19/11

Every Sunday, I will feature one easy, painless, money saving tip. 

Today's Tip: Save money on phone calls.  If you use a cell phone, avoid going over on your monthly minutes (and avoid overage costs) by signing up for free nights and/or weekends and make the bulk of your calls during those times.  Also, use free online services like Skype which provides free audio and video chats to your friends using a computer, smartphone, or tablet device.  You can also use Skype to make calls to a phone line and even make international calls for a small fee.  

Hope you find a way to incorporate today's tip into your routine this week!

Savings Sunday 6/12/11

Every Sunday, I will feature one easy, painless, money saving tip. 

Today's Tip: How do you spend your weekends? Is your idea of a good time trolling the mall and going out to restaurants? Try to replace activities that may tempt you to spend with hobbies that are free or cost very little.  Need ideas? I've got you covered. 

Hope you find a way to incorporate today's tip into your routine this week!

Savings Sunday 6/5/11

Every Sunday, I will feature one easy, painless, money saving tip. 

Today's Tip: Don't pay extra just for convenience.  A container of sliced apples usually cost more than a bag of whole apples (and usually come in smaller packages).  Individually packaged meats (example here) cost more than a large pack that you can separate yourself. Sure these products may help with portion control, but why pay extra for something you can quickly and easily do yourself with very little effort? Next time you're out shopping and come across an item that is marketed as a "time-saver" or "convenience", be sure to compare prices with the standard version of the product and decide if the added convenience is worth the price difference.   

Hope you find a way to incorporate today's tip into your routine this week!

Savings Sunday 5/29/11

Every Sunday, I will feature one easy, painless, money saving tip. 

Today's Tip:  Try cooking most of your meals at home.  Home made meals are usually cheaper than at a restaurant or pre-packaged meal, you know exactly what you're eating (which helps if you are trying to watch calories), and you can make as little or as much as you like.  If you're short on meal ideas or short on time, there a number of cookbooks out there just for you.  Check out Best Ever Three & Four Ingredient Cookbook and Rachael Ray 365: No Repeats--A Year of Deliciously Different Dinners (A 30-Minute Meal Cookbook).

Hope you find a way to incorporate today's tip into your routine this week

Savings Sunday 5/22/11

Every Sunday, I will feature one easy, painless, money saving tip. 

Today's Tip: Always have a shopping list.  If you're like me (well the old me lol), you find yourself in the grocery store starting at one end and going up and down every aisle making sure you don't forget anything...and along the way discovering more items that you need/want/crave :)  Have a plan and stick to it to keep your shopping budget under control.

Hope you find a way to incorporate today's tip into your routine this week

Savings Sunday 5/15/11

Every Sunday, I will feature one easy, painless, money saving tip. 

Today's Tip: Buy in bulk to save on items you use frequently.  Are you buying a candybar everyday from the vending machine at work?   Buy a box of them at your local discount store and save a few bucks.  Do you find yourself buying magazines every month at $4 a pop? Purchase a subscription and save up to 50% off the cover price, depending on the magazine.   

Hope you find a way to incorporate today's tip into your routine this week!

Savings Sunday 4/24/11

Every Sunday, I will feature one easy, painless, money saving tip. 

Today's Tip: Be on the lookout for discounts on your staple items.  Stocking up on these items when you catch them on sale may seem like you are spending more money at that time, but in the long run you will save on items that you purchase frequently.  (Note: this doesn't work well with perishable items)

Hope you find a way to incorporate today's tip into your routine this week!

Savings Sunday 4/17/11

Every Sunday, I will feature one easy, painless, money saving tip. 

Today's Tip:  Just say no.  Have any daily habits or indulgences (ex. morning Starbucks run, 2pm candy pick-me-up)? Try to go at least one day a week without making this purchase. Eventually move up to 2 days a week without it.  Even this small change can add up to savings over the course of a month or year!

Hope you find a way to incorporate today's tip into your routine this week!

Is Extreme Couponing too extreme?

Last night I was introduced to the wonder that is Extreme Couponing.  I sat on the edge of my seat (and repeatedly yelled "Get out of here!!!") as I watched a woman spend about $5 on over $500 of grocery on TLC's Extreme Couponing.  I stared in disbelief as someone approached the register with 4 carts full of groceries and stacks of coupons which saved them upwards of 96% on their purchase.

I had to know...how did they do it?

Savings Sunday 4/10/11

Every Sunday, I will feature one easy, painless, money saving tip. 

Today's Tip:  Get a library card! In addition to books, many libraries also feature DVDs, free internet access, and access to audiobooks.  

Hope you find a way to incorporate today's tip into your routine this week!

Savings Sunday 4/3/11

Every Sunday, I will feature one easy, painless, money saving tip. 



Today's Tip:  When you're out, turn it out.  Leaving home? Make sure you turn off the lights, unplug electronics, and set your thermostat to the off position.  No need to waste electricity when you're not there to enjoy it :) 


Hope you find a way to incorporate today's tip into your routine this week!

Savings Sunday 5/1/11

Every Sunday, I will feature one easy, painless, money saving tip. 

Today's Tip: Make saving money a team effort!  Carpool to work, swap clothes and supplies with a neighbor, split a restaurant meal with a friend. Working together can be beneficial to both you and others!

Hope you find a way to incorporate today's tip into your routine this week!