How To Master Your Finances In Your 20s

In your early 20s, it’s unlikely that you are highly in tune with your financial situation. Most early 20 year olds tend to get into the habit of living from day to day, with many finding that their money is gone before the end of the month. But, your 20s are a hugely transformative time of your life and this period is when you’ll likely move out on your own and make a start in climbing the job ladder.

It’s also when you should start developing good and positive habits that will last you a lifetime and part of that is mastering your finances. Now is a good time to get your finances into line, set some long-term money oriented goals and get saving for your future. With that in mind, let’s take a look at how you can master your finances in your 20s.

Learn How To Budget

One of the best and most important things to learn is how to establish and follow a budget. One rule that many look to follow is not to save what is left after you’ve spent, but to spend after you have set aside money for saving. This time of your life is potentially the hardest time to budget, as your circumstances are likely to frequently change, last-minute plans pop up and your salary also isn’t as high as it will be once you get to your 30s.

During this time of your life, your job role and salary are likely to change and this will naturally influence your financial behaviour. But, things such as changing living arrangements, travelling and social events can affect your monthly budgets. However, one thing which should remain constant is your starting amount. One of the best ways to learn how to budget is to take the price of household bills, travel/commuting costs and rent from your monthly salary.

By taking these amounts out of the equation almost straight away, it’s almost like the money was never really there in the first place. Once these main outgoings are taken care of, you can then put some of the money you have leftover into savings and then allocate the remainder towards your social events or other commitments you have for that month.

Manage Your Debt

The majority of people in their 20s have some form of debt, whether it’s a lingering student overdraft, credit card debt or car loan, now is the time to get your finances in check and get a plan together for managing your debts. Not only does this help you become more financially clear, but it also helps you to build a good credit history and rating for the future, which can mean the possibility of lower interest rates when you are looking to take out a mortgage.

Remember, not all debt is bad. There are forms of “good debt” which help to improve your financial position, even though repayments are required to be made over time. These can include things such as:

• Using a student loan to better your education
• Borrowing money to set up a business
• A low-cost mortgage

There are, however, forms of bad debt. These are where the debts have no real financial benefit, come with a high interest rate and drain your monthly cash flow. Ideally, with forms of bad debt, you should look to repay them as soon as you can. These include things such as:

• Overdrafts
• Credit cards
• Personal loan payments

If you are worried about debts you have, then it is always worth speaking to a financial debt advisor who will be able to offer advice and guidance on how best to manage your finances. If you are struggling with debt repayment, then solutions such as DROs or IVAs might be better ways to manage.