15 Essential Money Management Skills to Master in Your 20s

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It is never too early or too late to learn how to manage money and save. With that said, learning some skills in your 20s would be advantageous and help set the tone for your financial future.

Here are 15 critical financial literacy tips you need to improve in your twenties. These skills will lead you to financial balance and security and guide you toward long-term wealth building.

Create a Budget

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In your 20s, the first and likely most crucial money management skill to learn is budgeting. A budget is a way to keep track of your finances and make well-informed decisions to achieve your savings objectives. The first step is to write down your income and how much money you spend monthly. Pin down costs to reduce so you can roll more money into your savings or investments. Keep an up-to-date budget and stay on top of it.

Track Your Spending

Making a budget would do you little good if you do not stay within your set parameters. Document all your costs by creating a spreadsheet or downloading an app to assist you with monitoring what you are spending so that you can see patterns where necessary and make amends.

Set Financial Goals

This skill is one of the most important financial steps to achieving success with money. Maybe your goals are to get out of debt, save for a new home, or create an emergency fund. Whatever they are, ensure they pass the SMART test: Specific, Measurable, Achievable, Realistic, and Time-Bound. This way, you will be more inspired and work harder to achieve them.

Prioritize Saving

Save each month, whether for retirement or an emergency fund, translating a small percentage of your income into savings as often as possible. Start small if you have to, and gradually increase the amount as you earn more. Try setting up automated transfers from your checking account to a savings account to make it easier.

Build an Emergency Fund

With some money saved, unexpected expenses can become a little less daunting. Save at least three to six months of living expenses in something liquid you can access on short notice, like a higher interest-yielding savings or money market account.

Understand Credit and Debt

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You cannot make an educated decision without understanding what credit is and how debt can help or hurt your financial profile. Learn about interest rates, credit scores, and why timely payments are essential. Limit the use of credit cards so you don’t go into debt that you cannot handle.

Plan for Retirement

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Retirement is a long way off, but it’s not too soon to start planning for it. If you’re eligible, start contributing to a 401(k) or IRA as soon as possible. Utilize any employer match and consider hiking your contributions annually.

Invest Wisely

Investing is scary, but it is one of the most important skills to learn in your 20s. Take time to learn about various investment options, such as stocks and bonds or mutual funds. All investments except guaranteed ones are subject to risks, and you should talk with a professional before investing in anything, considering the risk that is suitable for you.

Live Within Your Means

Especially in your 20s, the desire for shopping and general living beyond your means is very tempting. But it might result in a financial squeeze over the long run. Learn to live below your means and stop splurging on worthless expenditures. And when it comes to your budget or financial goals, refuse what does not deserve a yes.

Educate Yourself on Taxes

Love or hate them, taxes are something that we all have to deal with at some point or another. Learn about the tax landscape, deductions, and credits that could apply to your case! Use online tax calculators or hire a professional if required.

Protect Your Credit

In the future, you will need a good credit score to secure loans and interest rates. Check your credit report for mistakes or fraud regularly. Also, ensure you pay your bills on time, keep low balances on your credit cards, and avoid opening multiple credit accounts in a short period.

Acquire Financial Literacy Skills

It is not enough to determine your finances and track your expenses; there are plenty of essential finance management tools that you also need to master in your 20s. Some of these skills are training to budget, negotiating bills, and knowing what types of insurance are available.

Plan for Long-Term Care

Long-term health care can often be ignored when you are in your 20s. Then again, starting early can be an excellent financial move. You may want to investigate long-term care insurance and an HSA (health savings account) for other alternatives.

Seek Financial Advice

Do not hesitate to consult specialized advice when it is financial. Your financial advisor can help you create a holistic financial plan to meet your goals and needs. They can offer valuable insights on investment strategies, tax planning, retirement planning ideas, and all the essential stuff that goes on with your finances.

Don’t Compare Yourself to Others

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In your 20s, it can be easy to compare yourself to others and feel like you’re not doing enough. Everyone’s financial journey is different; comparing yourself to others will only lead to unnecessary stress or spending beyond your means. Focus on your own goals and make decisions based on what works best for you.