Let’s cut to the chase – no gimmicky hullabaloo or bait-click titles; just straight-to-the-point, tried and true fundamentals that will put you way ahead of the financial game if you can conquer these in your 20’s.
(Listed by top priority first):
Get out of debt – and FAST!
This is not some arbitrarily-chosen, un-sexy first goal, but it is backed by some good ‘ole mathematics. Look real quickly: there is a 90% chance that the interest rate on your debt is higher than the interest rate you’re making in your savings, investment, and/or increased income. So, logically, if debt is not your first priority then you will likely never be able to outpace the rate that you owe on your debt.
Example: You owe $1,000.00 on your credit card that has a 15% APR (interest rate). If you only make the minimum payment each month – usually in this case about $10 – until the whole amount is paid off, then it would take you 14.3 YEARS and an extra $1,122.89 in interest just to borrow that original $1,000.00. This is asinine!!!!!
Create an emergency fund (3 – 6 months living expenses)
This, in a way, is almost directly tied to the first priority, “Get out of debt”, because, when life’s unexpected moments happen, the last thing you want is to be stuck footing a huge bill via credit or loan with a ginormous interest rate and then have to work years to pay it off. This also provides a comfortable cushion for switching jobs, starting a business, or any venture where you will plan to be unemployed for an open-ended amount of time.
Contribute 10% of your GROSS income to your 401k (or IRA if you’re self-employed)
If you work for a company that offers a matching 401k contribution plan (future blog post link here), then you must AT LEAST contribute the same percentage as the match; otherwise, you are leaving FREE money on the table that could turn into tens- or hundreds-of-thousands of dollars by the time you retire. Even better, make it a goal to contribute a minimum of 10% of your gross income towards your 401k/IRA each month. The secret is, by doing this in your 20’s, the wonder of compound interest (future blog post link here) will make money for you while you sleep.
Open a Roth IRA (learn how here)
What the heck does Roth mean? Be easy, it is not too bad. This is simply just another retirement account that has different tax benefits. With your 401k or traditional IRA, once you retire and start pulling money out of your account, you have to pay taxes on each withdrawal. However, the beauty of a Roth IRA is that once you retire and start pulling money out of this account, you don’t have to pay ANY taxes!! (why that is a big deal, here) What you SEE is what you GET! Just note that the most you can contribute in 2017 is $5,500.00 (because it really is that good of an option).
Open a brokerage account (learn how here)
Once your retirement accounts are squared away, it’s time to start making some more immediate money while you sleep. Opening up a brokerage account with any of the big providers (TD Ameritrade, Fidelity, E-Trade, Charles Schwab), will allow you to buy some neat and trusty index funds (future blog post link here) to nearly guarantee that you put your money to work for you (future blog post link here) year after year.
No time for me to go any further – get ahead and get started!