Financial Milestones You Should Be Starting In Your Early 20s

An individual's early 20s is a hectic time of life, especially nowadays. Finishing school, moving out on your own for the first time, working your first "real" job, and maybe even moving across the country all take a lot of time and energy, not to mention money. In today's world of a high urban cost of living, student loans, and pressure to acquire the latest tech, just keeping up can break almost any budget. This can make good financial planning difficult; however, your early 20s is the best time to get control of your financial future. By starting the right habits now, you can give your finances time to grow, and leave yourself in a strong position for your 30s and beyond. By hitting these milestones, you set yourself up for success.

Build An Emergency Fund

A whopping twenty-eight percent of Americans have no emergency savings, and for those in their early 20s, the percentage is much higher because they have had limited time to save. Emergency savings serve as the backbone of your finances and allow you to move through life without financial disruptions. Most financial experts consider an emergency fund indispensable because it covers life's unexpected expenses, especially the ones that cost you more than a single pay check can handle. These unexpected expenses tend to come in one big chunk, such as a car repair bill of 1,500 dollars. Few people have 1,500 dollars left from their pay checks after paying bills.

Generally, this means one of three things: the 1,500 dollars comes from emergency savings, is borrowed (often at high interest), or the car remains inoperable. Having the cash is always king and debt is the enemy of any solid financial plan. Experts recommend saving at least three months salary, but don't stop there, because if a bad recession strikes, you may face long-term unemployment. Your early 20s is the best time to build an emergency fund because expenses tend to be lower than later in life, especially if you are single. If you're still living at home, take advantage of the opportunity to save!

Continue reading to learn how budgeting is a critical skill to learn.

Create A Budget And Be Realistic About It

A budget tracks where the money goes every month, and individuals without one can end up in debt, broke, or both, including high-income earners. Sometimes individuals make the mistake of trying to squeeze too much into a budget or setting themselves an impossible savings goal. The key is determining what you can realistically afford, not what you wish you can afford.

To create a budget, first determine your final take-home pay, but be careful about overestimating. After this, track your expenses, including all fixed expenses, such as rent, car payments, insurance, utilities, Netflix, and gym memberships. List variable expenses, items such as groceries, gas, and entertainment, next. Once you have done this, list your goals, such as saving for emergencies or vacations and then make a plan to reach these goals. If you can't reach a goal as quickly as you like, look through your budget to determine if there are other areas where you can save.

Continue reading to learn how to increase your credit score.

Increasing Credit Score

A good credit score makes your life easier. It allows you to qualify for low-interest credit cards, car loans, and is also important in the long term for purchasing a home. When trying to increase your credit score, above all else, only charge what you can afford. Banks like to work with individuals with low credit-card balances. Also, never take a car or mortgage loan that is too expensive relative to your income. Another key factor is keeping credit-card balances below thirty percent of your total credit line, though it is even better to keep the balances at zero as much as possible, and as a rule, to avoid hurting your score, never go above fifty percent. It also helps to limit the number of credit cards in your wallet. One or two is enough, and more than that hurts your score. If you make paying your credit cards off every month a habit, your credit score will rise fast. It will also rise when you make all your payments on time. When delinquencies are reported, your score sinks fast. Also, if you have a credit-card balance, always pay more than the minimum. It may be impossible to pay off debt all at once, but when you pay more than the minimum, you save on interest and help your credit score at the same time. Lastly, let your accounts age. The more older credit accounts you have, the better your score.

Continue reading to learn why life insurance is so important.

Life Insurance

When you're in your 20s, it's easy to forget all about life insurance. After all, time is on your side! However, that's exactly why your 20s is a great time to acquire a whole life insurance policy. Whole life insurance is for the rest of your life, as opposed to term insurance, which is for a set period. Whole life is more expensive, but it also builds cash value you can then use as an asset later in life. Whole life is also very inexpensive when you are twenty-five compared to fifty-five, or even thirty-five. When you buy at the much cheaper rate for twenty-five-year-olds, you lock in that price in for life.

Additionally, many employee benefit programs provide life insurance. Most automatically provide enough for final expenses, though you may be able to purchase higher benefit amounts. If you are starting a family, consider how much they would need if the unexpected happened.

Finally, read on to reveal how thinking about retirement in your early 20s is fantastic.

Retirement

It may be more than a few decades off, but that's actually a good reason to start now, as the power of compound earnings is on your side. Compound earnings in a retirement account become so valuable over time because each year, as the account gets bigger from contributions and market gains, you get earnings on top of previous earnings. This is so powerful, as Business Insider notes, that someone who invests five thousand dollars annually between age twenty-five and sixty-five (200,000 dollars total) ends up with over one million dollars.

Many employers offer 401(K) plans with a company match. If available, these are the best options for starting retirement savings. The company match is like free money, and it can build, along with the rest of your savings, tax-free. Individuals without access to an employer-sponsored plan can sign up for an IRA account, which allows them to invest in a whole host of investment products with tax-free contributions of up to five thousand dollars per year.

Come on, get saving in your early 20s!