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Many people mention that your 20s are the best years of your life. While this may be the case from the perspective of having few major responsibilities, it is far from the truth financially. According to Edvisors.com, a leading online authority for planning and paying for college, about 71% of students graduating with a bachelor’s degree in 2015 had student loans averaging around $35,000. With a majority of current graduates suffering from extensive debt, wealth and financial independence may seem like a far-off dream. However, according to Ken Schapiro of Condor Capital Wealth Management, it is possible to create a solid foundation for a wealthy future while still in your 20s by following several important financial guidelines.

Establish a Budget

Before doing anything else, it is important to create a budget in order to establish steadfast rules on your monthly spending and saving. While it may be exciting to receive your first consistent paycheck after graduating college, you must focus on maximizing savings for big-ticket purchases later in life. To start, you must first differentiate between your “wants” and your “needs.” In order to get a better grip on your financial “needs,” begin by listing out all of your monthly expenses (including rent, car payments, and other debt). Once you know where your money is going, you should strive to save as much of your income as possible. We recommend starting off by saving at least 10% to 15% of your income starting in your 20s. With a solid hold on your income and expenses, you can then allocate the remainder of your income to miscellaneous expenses that you may have. In your 20s, it is very important to be realistic about your budget in order to begin accumulating a solid nest egg early on in your life.

Create an Emergency Fund

As your life progresses, unexpected events may occur in a blink of an eye. Therefore, it is important to establish an emergency fund while you are young in the event that an unpredictable event takes place. In general, it is recommended that you accumulate around six months of living expenses in an emergency fund. In today’s digital world, it is easier than ever to save without explicitly thinking about the process. In order to automate your savings, you should inquire about automatic transfers at your bank of choice, which will allow you to move a set amount of money from your checking account to your savings account on a regular basis. Overall, an emergency fund can help you during the unexpected and manage stressful situations where money is needed on short notice.

Begin to Pay Off Student Debt

After establishing a budget and getting a solid grip on your income, it is important to manage your liabilities; mainly, the student debt that you likely accrued while in school. With debt a reality for a majority of students in today’s day and age, creating a debt-repayment plan is essential to lessen interest expenses and get rid of your loans as soon as possible. With the typical duration of a loan set to about 10 years and countless loans set at 30 years, most students will be left making considerable payments to Uncle Sam and private lenders well into adulthood. In order to gain the upper hand on your obligations, consider paying down your highest-interest-rate loan first. Alternatively, you can focus on paying down the loans with the smallest balances. While both these approaches work, different personal situations will usually make one approach more desirable than another. Whichever approach you choose, never forget to satisfy minimum payments on all debts. In addition, consider setting up automatic payments on your loans, as this will typically qualify you for an interest rate reduction of 0.25%.

Contribute to a 401(k)/Roth IRA

“Pay yourself first” is a phrase that is very commonly thrown around, but when it comes to planning for wealth accumulation, this statement is indeed important. Retirement may seem like an eternity away for many young professionals in their 20s, but laying the groundwork for your future now can pay off handsomely later. If your employer offers a 401(k) plan, enroll immediately and take full advantage of your company’s match program, which is essentially free money. Note that 401(k) contributions are made pre-tax, meaning that they will be taxed at a future date (when withdrawn from the account). That said, your adjusted gross income becomes lower, as well. For example, if your current adjusted gross annual income is $50,000 and you elect to contribute $5,000 to your 401(k), only $45,000 of your income will be taxed today. Whether or not a 401(k) option is offered, consider opening a Roth IRA, which allows you to make after-tax contributions at a maximum amount of $5,500 per year. Please note that a single individual must make less than $132,000 per year, while married couples must make less than $194,000 to contribute to a Roth IRA in 2016. Whatever your situation may be, making contributions to a retirement account is a solid strategy.

Build a Credit History

As you begin to think about larger purchases in your late 20s, such as a new car or a house, having a solid credit history will become more and more crucial. Financial institutions increasingly give an upper hand to individuals who demonstrate the ability to handle debt responsibly by using a credit score as a reliable gauge of your creditworthiness. Therefore, it is important to be responsible with your purchases in your 20s by paying bills on time and keeping your credit utilization (the ratio of the amount of credit offered to the amount of credit used) to about 30% or less. By only accumulating modest balances on a variety of loans and paying them off in full, you can make sure that your credit score stays intact. Additionally, it is recommended that you check your credit score at least once a year by using free tools at CreditKarma.com or CreditSesame.com. While monitoring your credit may seem like an unusual thing to do in your 20s, it is a practice that will save you money throughout your life, since problems such as false items can pop up at any time.

Your 20s are a glorious time of self-discovery, career progression, and overall freedom. However, entering the “real world” comes with many responsibilities, including managing your financial future and overall wealth. By putting into play the above-mentioned items today, you will be on your way to accumulating wealth while still in your 20s!


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