Are our twenties the time to splurge with no regrets or is it the time to start thinking critically about our finances?
I am sure the latter part seems boring and not important when all you want to do is explore the world, party with friends, and get your degree.
Now spurlging with no regrets… that sounds appetizing.
Well, until you realize you do not have that much money to splurge and your finances are making you stressed out.
Let’s evade that stress by going through 10 things no one tells us in our 20s…about money.
10 Things No One Tells You About Money In Your Twenties
1. How to fill out a W4
Every time you start a new job, you have to sign a W4, before you get paid. In my experience, I would rush through signing this because I wanted to get PAID! Not to mention, I didn’t even know what the form was asking me for.
The other day, my mother forced me to go with her to do my taxes. I wasn’t really interested in going, but all I wanted was that cute refund check that came with it. I decided to go because I want to learn more about how taxes work and how I can eventually do my own taxes. (Why pay someone hundreds of dollars when you can do it yourself!)
Just when I thought Michael was going to give me my cute refund check, he told me I owe the government money. I was surprised and upset because I came there looking for money not expecting there was a possibility I would not get one. I was also upset because I felt blindsided. I let my ignorance of taxes get the best of me.
Let’s backtrack and explain how this happened to me….
A W-4 is the Employee’s Withholding Allowance Certificate; in other words, this form helps the company know how much money to withhold from your paycheck for federal taxes. I got confused on Line 5:
Allowances…? How do I know how many allowances to claim? What are allowances?
Ultimately, “the more allowances you claim, the less money your employer will withhold for taxes. You get one allowance for yourself, one for your spouse, and one for each dependent you report (i.e children).” -(Info from:Turbo Tax- What is a W-4)
On line 5 for my W-4, I wrote 2 instead of 1, so I was claiming for myself and someone else (I am not married nor do I have children). So, I received more money on my paychecks since the government took out less money for taxes. Thus, I owed the government money.
I was happy when my paychecks were higher, but I never inquired why they were. Even though I had to pay back money, which works itself out since I received more money throughout the year, I am happy I understand how it works. (When you receive a tax refund, it is because they took out more taxes throughout the year, so your checks are smaller).
We have to want to know how things work, and question when we are unsure. Especially, when it comes to your money! Don’t let anyone pull a fast one on you because you give them the power to make all of your financial decisions.
2. To start paying back your student loans… like NOW
Anyone who stops by The Mindful Rise frequently hopefully knows how strongly I feel about this point. I talk to too many adults who are stuck paying off their student loans for decades after they graduate college, and I completely understand why because college is SO expensive. We think about our education first, and then how we are going to pay for it later.
I want to change this mindset because I don’t want student loans to prohibit me from buying a home, investing, or traveling the world. An education is supposed to help propel you into the world not hold you back financially and add unneeded stress to your life.
Before you start paying back your student loans in college, you need to get it out of your mind that you have all the time in the world to pay it back. In college, we think of loans as an afterthought, as something that we will tackle later in life. I challenge you to make it a priority. Even if you put $100 towards it every month or every two months that is $100 less that you will have to pay back when you graduate with interest.
I challenge you to make it a priority. Even if you put $100 towards it every month or every two months that is $100 less that you will have to pay back when you graduate with interest.
Think about it, you don’t have to pay back loans until your 40, what about until you are 25 instead…
3. Invest early
I asked my sister, Jamila Souffrant, from Journey To Launch to give her advice on a few of these points. Last year she saved/ invested with her husband $85k! Needless to say, she knows her stuff!
She said, the earlier you invest the better. It is important to take advantage of time because the more time you have to grow your money, the more money that will accumulate due to compound interest. Compound interest is when your money makes money. Moreover, your money is working for itself.
When we are young it is hard to allocate our limited finances to savings, debt, investments, and an emergency fund. So, it is important to have your priorities straight. I think it is important to make your debt payments a priority and then put the rest of your money towards other things, which a budget will help you do! (point 10)
4. Save your money
Out of all of my points, I know most adults in their 20s embrace the importance of saving their money. Nonetheless, it is not always easy to save. Between yearning for frivolous expensive material things, going out to eat, buying coffee daily, transportation, bills, etc, it can be hard to stash away cash.
Trust me I get it because I fall victim to all of those things. The key is to put away some money into your Savings account before you do anything else.
Are you planning to go on vacation, go to a conference, or furnish your home? You can tap into your savings account, and you will be happy when the money is actually there.
I was able to start paying back my student loans last August because I had money saved in my savings account. I would not have been able to do that if I did not have one.
5. Have an emergency fund
An emergency fund is a type of savings, in which you put away anywhere from 3 months to a year of expenses aside for emergencies or unexpected financial situations, like losing your job or a medical emergency.
Journey To Launch said, it is highly important to have an emergency fund because there will always be unexpected emergencies occurring. In our twenties, we think we can wing it by not having an emergency fund because we don’t have as many responsibilities but you still want to be prepared just in case you lose your source of income.
6. Credit can either be your best friend or worst enemy
My sister is a strong believer in paying your credit card balance in full by the end of every month, so interest doesn’t build. Interest is only your friend when it works in your favor and your money is making money, but interest is your worst enemy when it deals with debt.
Often we hesitate paying back debt because we don’t have the money. However, it’s even worst if you don’t pay it back because interest will accumulate on it and you will be stuck paying back more.
That’s why its smart to start paying back your student loans in college because you’ll avoid all the interest that occurs post graduation.
Regarding credit cards, don’t buy something if you can’t afford to pay it back in time. Credit cards are great because they give us instant gratification and false satisfaction when you can buy items right then and there even if you don’t have the money.
Let your credit card be your best friend. Take advantage of all of the rewards and leave behind the debt.
7. If you can buy don’t rent
I have to admit this is a hard one right now with the real estate market. I always wanted to follow my sister and buy a condo when I graduate college. It would be an investment, but one that would help me exponentially in the future.
Technically we pay so much in rent per month, that it would be ideal to just buy the place. However, when a condo is more than half a million and a brownstone is 3 million it becomes just a little more difficult.
Nonetheless, my sister at 22 was able to buy her own condo in Dumbo after college. Here’s an article from her blog about the story:
She says, if you have the opportunity to buy something you can afford then look into it, but don’t overleverage and overextend yourself to get it. It is a great investment as long as you are not overpaying and there are indications that it will appreciate over time. It’s great to buy because it is an asset, an investment.
My sister still owns that place, she sold another condo that she worked with her husband, and she owns a house. Every month she receives rent from the condo in Dumbo and it appreciated in value to almost doubt the cost she paid for it. It is an asset she can pass down to her children. Thus, if it is a worthwhile investment it is a great asset.
8. Think big, don’t just think about tomorrow think about the big picture
The motto in our twenties is to live in the moment with no regrets. I completely agree that we should take risks andenjoy ourselves while our responsibilities are limited (I.e no children, mortgage, medical bills, etc).
I am naturally someone who needs to plan everything out, so I am working on being spontaneous; however, it’s important to not always just live in the moment. If the moment calls for you to spend $300 on clothes or a watch, but your credit card bill or student debt has dust on it collecting interest then your priorities aren’t straight.
Think about this..wouldn’t you rather cut, save, and invest back while you’re young and you have less financial obligations then be in debt (with a family) and stressed out when your older. You might not want to think about your life in 10 years, but it doesn’t hurt to have a plan and miss out on a few luxuries while you’re young.
9. Now your net worth
How many people know what their net worth is right now?
I would assume, not many…because it is not something many people in their 20s talk about. We don’t have conversations about our net worths at a coffee shop or over brunch, which is fine because no one really needs to know your net worth except for you.
I know my net worth because of the app personal capital. Net worth is your assets (- ) your liabilities.
If you have debt, your net worth is probably negative. My net worth is surely negative because of my student loans. I don’t have enough investments and savings to equate to more than my student debt.
Your goal is to have a positive net worth because that means you have little to no debt. It is important to know your net worth because you are always aware of your debt. Too often we put our debt at the back of our minds because we don’t want to think about it, but if you are avoiding it that is not going to help it go away.
I am cognizant of the debt I owe and my net worth, so I am actively making sure I work to make that number positive!
You are never too young to care about these numbers, and don’t ever be ashamed that you care about these things!
Also, don’t beat yourself up if your number is negative for a while. I am hoping I can change that number to positive in the next few years, but then another big investment might come and change it again. It’s just important to be aware of it!
10. You’re never too young to start budgeting
Journey To Launch says, a budget is always important because you should know exactly where your money is going. If you have a budget, it is easier to account for where your money is going. You don’t need to have a complicated budget, but something that keeps you organized.
In our twenties we might think we are too cool for budgets. Well, let me tell you budgeting is cool!
What is not cool is living from paycheck to paycheck.
You can either use an app, write it down, or keep a mental log, but be mindful of where your money is going and what expenses you have.
It’s not alright to wait until you’re 30 to get your finances together and try to fix bad habits.
Get out a journal or a spreadsheet and change them now! You’ll be a pro at budgeting by the time your expenses start to increase, you have to raise a family, and live your life.
Too often people go through their twenties with bad financial habits and the mindset that they have time to fix them.
I promise you can live your life and take risks while still saving, investing, and budgeting. And you’ll feel more on top of life because you’re controlling your money and your money isn’t controlling you.
Can you relate to some of these points? Comment Below!