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Learning how to manage finances is difficult at any age, but especially so in your 20’s. For the first time you are learning how to balance your career, your home, a car, school, maybe even marriage, kids, and so much more. Very few people learn these money skills before graduating high school, and only a few learn these skills right before they need to use them.
For most of us though, we learn as we go. And that can be scary, overwhelming, and sometimes even costs us more in the long run. So before you start stressing, take a look at these easy beginner finance tips for people in their 20’s. And learn how you can start taking control of your finances.
Start A Budget
Very few individuals in their 20’s are making more than enough money to fully cover expenses, avoid buying on credit, and not have to live from one paycheck to the next. So understanding the basics of a budget can be your best tool to becoming more financially stable, and even independent.
The basics include tracking expenses, income, and learning how to balance those out so you have enough money at the end of the month for extra costs. Or, for fun and entertainment if you’d like.
If you are interested in starting a budget and are ready to start tracking your finances, you can sign up for a FREE Budgeting Spreadsheet that I made. This spreadsheet is easy to navigate, input your information, and will do all of the hard and confusing math for you automatically. You can sign up to get the spreadsheet here.
But, if you do have extra money left over at the end of the month, it is usually best to set that extra aside to pay off loans and credit. This can save you more money in the long run, and even boost your credit score. But I will get to that later. Let’s jump into how to track your expenses.
Track Your Expenses
Before you look at how much you earn each month, you need to focus on what your expenses are.
It’s usually easiest to start with your largest expenses and work your way down to the nitty gritty.
- School tuition/ books/ etc.
- Rent/mortgage
- Utilities
- Car payment
- Loans/ credit card payments
- Groceries/ food
- Insurance
- Internet/ phone
- Car tags, registration (other yearly, or twice yearly costs)
- Clothing/ uniforms
- Entertainment
- Gas
- Home/car maintenance
- Leisure spending
These are just of few of the main expenses you will want to track first. But there are other expenses you will need to include as well. This can include childcare, pet care, and any savings you want to set aside for future events like a wedding, house, newer car, and so on.
Once you have your expenses listed out clearly, write down how much each of those things cost you last month. And if you’ve already kept track of those same expenses before, find the average of each expense. This average will be your expected cost each month.
Track Your Income
Your income will be the next thing that you track. Tracking your income and expenses are the most basic rules to maintaining a budget. Keeping track of your income is much easier than tracking your expenses.
For most people in their 20’s, they will have either 1 full time job, a couple part time jobs, or a variation of hours that they work.
The more jobs you have, the tricker it can be to keep up with. But as long as you have a paystub, or an online e-stub where you can find your net income and hours worked, this shouldn’t be too difficult.
However, I do recommend checking with your employer to set up an online paystub, or make sure you regularly access this. In some cases, there can be discrepancies in your hours, or paycheck. Either due to a system error, missed clock-ins, or something else.
Either way, you don’t want to be left in the dark wondering why you didn’t get paid enough. This is especially important if you frequently work holiday pay, over time, or any other instances of pay bonuses. You don’t want to miss out on your hard earned money.
After looking at all of your income streams for the whole month, write it down.
If you receive dividends from sources like stocks, or other income that isn’t very consistent, try to avoid setting this into your typical income section. It may be best to set any additional income like this to the side for bigger events. This can be great for a wedding, new car, vacation, house, or any other big purchase.
The reason you don’t want to include this into your regular income, is that it is not always reliable.
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What To Do After Tracking Your Income And Expenses
After you have tracked both of these, you will need to find the difference. If you remember your basic math, this only requires subtracting your expenses from your income. So total everything from expenses, and subtract this from you total income.
The goal of having this budget, is that you have more money left than you have spent. If you don’t have much, or anything left over, you will need to reevaluate some things.
If you have a negative amount each month, meaning you spend more than you make, then you will want to consider some options.
- Work additional hours
- Cut back unnecessary expenses
- Eat out less
- Carpool
- Reduce utility usage
- Avoid leisure spending
When you have extra money at the end of the month, meaning you have additional money to spend, here are some options for you too.
- Pay off high interest debt early (anything 7% or higher)
- Pay off any credit debt
- Pay for next months expenses (rent, loans, etc.)
- Place extra cash in an emergency fund
- Invest the extra
- Save for a big event
- Budget this into your leisure fund
- Treat yourself (wisely)
What you do with your extra income is all up to you. However, I do strongly recommend you pay off debt first, particularly high interest debt. This is anything that has an interest rate that is 7% or higher. The longer you go without paying off this debt, the more you eventually pay.
After high interest loans, you should also consider investing. The average stock return from the S&P 500 is around 10% each year, according to Nerd Wallet. So if your money is not used to pay off debt, you should be using it to pay your future self. This can even mean an early retirement.
If you decide not to pay off debt or invest, you have other options as well. You should, however, always have a designated place for each dollar you have in your budget. That is the whole purpose of the budget.
One of the last options you may need to consider is paying for next months expenses. If you struggle to get by each month, but you actually have a bit leftover this month, consider paying your future self a little. This means you will also have a little left over next month too. Since your budget will have additional income if you pay next months rent, for example. This can help to relieve a bit of stress as well.
Keep Track Of Your Loans and credit
Keeping track of how much you owe on your student loans, or other long term payments isn’t always a priority for young adults. However, it really needs to be something that at the very least, you are aware of. As a college student, you will need to know who your lender is, and how to access your information online. If you have a parent or guardian who has helped you set up loans, ask them for help in getting access to for the login.
If you have applied and received the loans on your own, then you should already have access to this information.
Once you have logged into your lenders website, whether this is federal or private, you will want to look for your loan accounts. After finding the accounts, check to see what the interest rate is on each loan, and how long you have to pay off each loan.
If you are attending school half or full time, your interest rate might remain in deferment. This means no required payments during that time. Once you have finished school, you will also likely have a 6 month grace period, which does not require you pay on those loans during that time as well. This gives you an opportunity to find a job and get on your feet before having to start paying.
In addition to student loans, you may also have car loans, or a mortgage payment. I would normally consider a mortgage as budgeted under your rent payment. However, a mortgage is still a loan which you can choose to pay off early.
Either way, whether it is a car or mortgage, you will need to know and have access to your account information as well. This will help you keep track of any changes to you interest rate, if it is variable, what your monthly payment is, how much left you owe, and more.
Awareness of your finances is always better. I understand that it can be overwhelming at first, but know that you are not alone, and so many other people have traveled this finance journey too. So keep on trucking, and let’s get to the next one on the list of easy beginner finance tips.
Tracking Credit Cards
In addition to knowing what your student loans are, you will also need to keep track of your credit card accounts. Credit cards can be very tricky, and even more challenging to young adults who are new to finances.
Unfortunately, most credit card companies are not here to make friends, but to make money. So, when someone starts to spend frivolously and forgets to make their payment on time and in full, the company benefits. But don’t be discouraged.
Credit cards are not always a bad thing. You just have to use them wisely. They are a tool like any other finance tool, but like any tool when used incorrectly, can cause injury.
Credit cards almost always have a very high interest rate, with the average around 23%, according to Forbes. So if you forget to make your payment on time, this can really bite you in the wallet.
Fortunately, credit cards aren’t a typical “loan based” type of credit. So there isn’t a huge amount to pay with that level of interest rate.
After mentioning student loans and car loans, you will also need to know how to access your credit cards accounts. You will want to know how to keep track of your monthly statements. This can also help you find any ‘over-indulging’ when it comes to tracking your expenses for your budget.
Also, when checking your credit card statements, you can check for any fraud or overcharges. Doing this regularly will help you prevent and avoid identity theft. So be sure to check your statement frequently.
Always Be Aware Of Your Finances
It is always better to know, and be aware of where you stand financially. It’s very common to be stressed or overwhelmed by finances, because we often feel uncomfortable when talking about money. We usually experience a lot of emotions with money.
When we feel stressed, we sometimes buy something to make us feel better. When we are excited and want to celebrate, we spend money to celebrate. If we feel scared, we buy something that makes us feel safer. So money and emotions follow much of the same path. But this is a discussion for another day.
Understanding where your money comes from and where it goes, is your best tool, and is one of your easy beginner finance tips, that you will need to know how to use.
