The Importance of Personal Finance In Your 20s (Part 1)

Organizing your personal finances during your 20s may seem unimportant and not worthy of your time now, but years from now you will look back and realize how important it truly is. Like many people in their twenties, you may be just out of college with have debt, making little money at your first job and very little assets to manage. However, there are still some great steps that you can take to build a strong foundation for the years to come. Laying a good foundation now will allow you to build wealth and create security in your life, that will continue to grow exponentially as you get older.

Follow this list to learn some important personal finance tips. If you begin adhering to these tips in your 20s, then you will set yourself up for great financial success for the rest of your life.

1) Educate yourself about personal finance using free online sources.

Many people graduate from high school, and even college, with little to no knowledge of how to manage personal finances. While it is unfortunate that many people still receive no formal education on personal finance in school, in this modern age we are lucky to have a ton of great resources available online. Gaining at least a basic understanding on what options are available for managing your money and accumulating wealth will be extremely helpful as start having to make important life decisions. Check out some of these great resources:

2) Create a budget.

Maintaining a budget is an extremely important part of organizing your personal finances and it should be a practice that you maintain throughout your life. You should have a firm grasp on the amount of money that you are brining in every month and what you are spending your money on. Creating a budget provides you with a visual of where your money is going, which helps you make responsible, informed and purposeful decisions as to how you allocate your money. If you are unsure on how to go about taking this step, here is a great article on how to create a budget.

Breaking Bad Tradition

On the road to financial freedom, we are most prone to emulating the lives and habits of those we learn from. And, more often than not, those models are our parents. Some of us had parents who exhibited awesome financial habits, and managed to learn from them. Others of us were not so fortunate, and may have developed poor financial habits and practices. But that doesn’t mean all is lost or that it’s too late to change direction. Over at the Art of Manliness, guest contributor Jeff Rose shares a couple tips that will help us to not make the same money mistakes as some of our parents. Keep in mind, that these tips are things you will have to work on with diligence; a lot of lessons we learn self consciously, and can be hard to shake. Check them out after the jump!

 

  • It’s all in the mindset: Thoughts such as debt being inescapable or financial hardship just being part of life are usually just poppycock. While certain hardships do come, folding to defeat or using them as an excuse for poor habits are no way to improve your condition. Maybe the reason you believe these things are because of what you have been taught as a child. But the first step to correcting this mentality is coming into a sense of self awareness. This idea of change starting with the mind is far from self evident, and by all means, you should share this with others less fortunate than you. Anyway, how do we break free from the prison of our minds; how should we frame these situations? Again, it starts with awareness. If ever you find yourself jealous of the material gains of those around you, do not automatically blame it on circumstances or the idea that they have more than you. Take a step back and look at your own financial habits. What are you doing differently? What are you not-so-great at or what could you be doing better? Consider that you don’t have all the answers, and look around you, ready to emulate better role models.
  • Mentorship: Next, you’re going to have to find a model to stick with. This may seem to be unnecessary at first, but you will soon enough realize that there are a ton of nuances to the finance game, and have questions upon questions. It would certainly help if someone could answer them! A good first step is joining a personal finance site (like this one!) that is teeming with tips for the person trying to gain control of their wealth. Rose suggests The Debt Movement and Enemy of Debt. Or, you could take the old fashioned route, and pick up a book by a reputable finance guru like David Ramsey or Napoleon Hill. Next up, you should definitely try to forge a more personal relationship. Unless you know a financial powerhouse firsthand, it can be a bit awkward to start a relationship like that. So what can you do? For starters, why not reach out to financial institutions and directly ask questions for experts in that field? Want to learn about loans? Talk to a loan officer. Interested in small business? Talk to the owner of your favorite shop!

 

 

How to Control Personal Debt

At some point in your life, you may find yourself in debt.  Whether it’s from credit cards or mortgage loans, there are always ways to improve your personal debt and get on track towards accomplishing your financial goals. To start, it’s vital to pay attention to your own spendings so you can avoid falling into financial debt.  But, if you do find yourself struggling with your finances, make sure you gain the knowledge you need in order to aid yourself to recovery.

CNN money urges you to be aware that some debt is good, as long as you can pay it back.  For instance, borrowing loans for college is a smart decision, because with the degree you earn, the higher your chances are of landing a job and having a better income.  Just always make sure you look for the best rates and be comfortable with knowing that you will have to pay back the loans – you don’t want to put them off for too long.

Many Americans are overwhelmed with credit-card debt, so make sure you aren’t using a credit card to pay for things that are rapidly consumed.  In 2012, according to CreditCards.com, the average American household has around $15, 950 in credit-card debt.  This is the fastest way to fall into debt.  It also means that you should refrain from using your card on things like meals and vacations, especially if you don’t think you will be able to pay off your monthly bill in up to two months.  Be smart about what you’re spending your money on.  Always ask yourself if you really need it.  Of course, we all have our own splurges from time to time, just make sure they’re worth it.

money, cards, bills

There are several means by which one can control debt.

A good way to know what you’re spending each month is to write it down.  Most people spend more money than they think they do without much thought about what they’re buying.  Start knowing your expenses, because once you are aware of your spendings you will cut back on unnecessary items.  This simple task of keeping a written record of your purchases will help you save money are quickly help to reduce your debt.

Another key to reducing your financial debt is paying off your highest-rate debts first.  Many people tend to avoid taking care of these debts because they get scared by the high numbers.  In reality, paying off the balances of loans and credit cards that charge the most amount of interest will help immensely reduce your debt.  Take it one step at a time, you don’t have to pay off each of your highest-rate debts at once, but you’ll feel much better about your financial situation once you start to pay off those big debts.

Remember, knowledge is power – so know knowing how much you spend each month and what steps you need to take in order to improve your personal debt is key for financial success.