From Broke to Boss: How to Handle Your Money in Your 20s
Now that you’ve put the teen years behind you, if you’re like many other Gen Z’ers and young millennials, you may feel like the sky’s the limit. As an adult, you’ve got a blank canvas to draw upon. The problem is, if you’re like most 20-somethings, you’re short on money.
Gen X’ers and Baby Boomers often think being young and broke is an unpleasant but necessary pit of quicksand in the path toward becoming financially savvy. Through lots of dues-paying and struggle, you climb out of it to move onward and upward. The thing is, it doesn’t have to be that way. Statistics showed in 2016 there were 585 billionaires in the United States, but only 20% attained that status through inheritance. Globally, the majority of billionaires are also self-made, and a number of them are in their 20s and 30s.
So instead of spending your 20s plunging yourself into and then digging out of financial holes, start smart. The first step toward successful business ownership is understanding how to handle your money with an eye on the future at all times. Once you get this under your belt, you can pursue your entrepreneurial dreams.
Learn how to follow a budget
If you don’t want to struggle living paycheck to paycheck — or worse, spiraling into debt — the first order of business is learning to manage your money. This starts with creating a budget. Budgets help you to track spending, be aware of any overages, and stay on target as you work toward your financial goals. Take these steps to create your first budget:
- Define your financial goals.
- List all your income streams.
- Identify all of your expenses.
- Build in a cushion for unexpected expenses or emergencies.
Remember to differentiate between fixed and variable expenses so you don’t run short during certain months. To make budgeting easier, use online tools and apps to guide you.
Pay down your debts
Granted, if you’ve got student loan debt, this puts you back a step financially. So when planning your budget, be sure to prioritize paying down this and any other debt. The sooner you’re debt-free, the more quickly you can begin putting cash toward starting your business.
Understand how to maintain a good credit score
Your credit standing directly affects your financial prospects. If you’ve already begun building good credit, you’re ahead of the game. If you haven’t, you should start working to establish a positive credit standing. Here are some tips on how to do so:
- Only charge what you can afford to pay off each month.
- Avoid “minimum payments,” which are designed to cost you big-time in interest.
- Pay all your bills, including your utilities, on time.
- Limit your applications for new credit. (Too many will drag down your score, so only apply for a new card when necessary).
If you’re not regularly monitoring and building your credit score, you should start. Staying on top of your score is a good way to see if something’s amiss, for instance, if you’ve missed payments or have been an unfortunate victim of ID theft. (Tens of millions of people have their identities stolen online.)
Put additional skills in your toolbox
A smart strategy in your 20s is to be on the lookout for ways to broaden your professional skill set. The more skills you possess, the better positioned you’ll be down the road. Extra training and certifications will help you build your professional standing and can add value to your personal life. You never know which skills you might need — for example, everybody can benefit from training in CPR or first-aid skills. Depending on your industry and the certifications you obtain, new skills can also mean a pay raise.
Consider buying a fixer-upper
Most people in their 20s opt to rent living space. However, if you’re a little settled and have some cash set aside, consider buying a fixer-upper. This way, your rent dollars won’t be helping someone else build their wealth: You’ll be building your own instead.
The real estate market has favored sellers in recent years because of a scarcity in single-family homes. However, industry experts also believe this is a good time for buyers because they can snag lower mortgage rates. Generally speaking, mortgage interest rates are expected to drop to 3.8% by the end of 2020.
Timely mortgage payments will solidify your credit standing and help you gain some equity. If you have the means to invest in real estate, get pre-qualified, find a good real estate agent, buy a fixer-upper, rent a dumpster, and start pulling up do-it-yourself YouTube videos. The amount you can save in sweat equity will likely surprise you. Eventually, you could flip the home for a profit and use that cash toward seeding your company.
Keep an eye on the future
If your goal is to own your own business, you should always be thinking of all the things you can do to reach your entrepreneurial goals. Whenever you can afford to put away some seed money, be sure to do so. When you’ve got a little extra, it's tempting to go shopping for a new car or trendy clothes, but driving an older model and shopping at thrift stores will serve you well.
You’re probably going to make some mistakes along your entrepreneurial journey; everyone usually does. One good thing about your 20s is you have time to correct your mistakes (as long as you’re aware you’ve made them) and develop the know-how and skills to fix them.
If you start off on the right financial footing and work hard to achieve your dreams, who knows? One day, in the not-so-distant future, you might just find yourself included on the list of self-made billionaires!