9 Practical Tips for Managing Personal Finances in Your 20s

Image Text: Tax and Finance Papers

Don’t know where to begin with managing personal finances but all advice sound difficult too? Don’t worry! These 10 tips have proved to be practical for people of all income levels!

The distance between generations of people experiencing economic downfall just as they enter the workforce has been decreasing the last few decades. Unlike older generations, today's young people cannot afford to blow all their earnings from their initial working years on luxury experiences and items they can hardly afford. They also cannot put off navigating personal finances when they decide to get serious about their career or goals.

In today’s times, people in their 20s have to be smart from the very beginning and learn the ropes of personal finances sooner than later. Here are ten practical tips that will help them do just that:

Track Your Habits

Tracking money can be stressful or at least overwhelming. However, tracking spending habits can feel less stressful while still giving you an insight into your spending habits and help you understand them.

You don’t have to download or buy a special habit tracker either. You can make one yourself on a sheet of paper with rows of ‘impulse shopped for clothes,’ ‘bought coffee when running late,’ or the likes and columns of all the dates of the month.

On another sheet of paper, write down all the dates again, one on each row. Put these papers up where you can see and access them, such as your desk or refrigerator. Once you have made a habit tracker, you have to check the box for whenever you buy something on impulse on the tracker and write the item you bought on the other paper with dates.

After a month or so, you will begin to see a pattern in your spending habits. You can then work on fixing the habits that you believe aren’t benefiting you.

Identify Your Money Goals

Identifying money goals is the first step towards achieving them. The concept of saving money or making investments without any purpose can be demotivating. While young people mostly have short term goals that can be achieved in a few paychecks, setting up long-term goals can help make some serious savings.

Get Acquainted with Money Language

Understanding how money works and the language that it speaks will significantly improve your skills in managing finances. It will save you from signing up for things you don’t understand and hidden charges or other similar accidents.

Divide the Budget

Though the 50/30/20 rule works great for most people, you can divide the budget as per your expenses and income. In the 50/30/20 rule, 50% of the income goes toward necessities, 30% towards entertainment and wants, and 20% towards savings.

You can apply this rule and later tweak it according to your lifestyle. If you don’t spend too much on entertainment but like to keep your home comfortable, you can turn the rule to 60/20/20 or however it suits your needs.

However, make sure to put at least 15% of your income towards your savings. Dedicating a standard percentage of your income towards saving at the beginning of the month can also keep you from overspending.

Learn to Use Credit Cards

You can skip this tip if you don’t trust your spending habits. However, if you can learn to use credit cards in clever ways, they can end up saving you a lot of money and can also help you fulfil some short-term monetary goals.

Open Multiple Savings Accounts

Opening multiple accounts can significantly help in managing finances. You can open accounts for emergency medical expenses, vacations, seasonal shopping sprees, gadget updates, side hustle funds, etc. Dividing the savings into smaller sections takes away the feeling of putting too much money into saving and reduces the urge to spend it on other things.

It also helps in achieving short term monetary goals too. If there’s only a tiny amount short for you to accomplish a goal, you can get a small personal loan, such as Nifty Loans, too. You can return the loan in the same manner you were saving up for other goals or other short term goals.

Pay Manually

While setting automatic payments can ensure timely payments and save you from surcharges added for crossing due dates, paying manually can give you a better idea of how much your utilities, subscriptions, and memberships cost. It will also allow you to cancel service once you know you won’t require it. If you struggle with impulse shopping, paying for needs might help you curb the urge to spend on wants.

Learn to Invest

Investing your money can teach you a lot of things. It can teach you how the economy works, trends of inflation, the financial growth of businesses and individuals, the benefits of financial security, and the power that comes with making informed decisions.

Get Insured

Getting insurance is usually an unpopular opinion among most young people. However, it is an absolute necessity. If you’re in your 20s, your first few years as an adult must have already taught you about the uncertainty of life. Signing up for insurance can keep you safe if you come across more of these uncertainties.

You should at least get basic health insurance. If you have any particular health condition that regularly demands attention, signing up for upgraded health care plans can be a wise decision. If you have a personal vehicle, sign up for car insurance too.

Don’t Hoard Money

Saving money can bring a sense of self-control and financial security. However, saving too much money and not spending it can become problematic too. Don’t compromise on your comfort or necessities for the sake of saving the maximum amount of money for an unseen and uncertain future. Instead, learn to manage money in a way that you can enjoy life in the present and future.

While all the tips mentioned above are practical and work for most people, only you can decide if they will work for you. Different people have different lifestyles and needs. Don’t give up on learning to manage personal finances if these tips don’t work for you. Look for other methods.

However, understanding your inflow and outflow of money can help you more than anything. It can acquaint you with managing finances and help you apply valuable tips to get better at it. It may also allow you to come up with new methods to deal with it.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes