Most people in their 20’s are not thinking about financial freedom. That’s something for people nearing retirement, right?The truth is that financial freedom can be achieved in your 20’s. It may look different than financial freedom in your later years but the principles are the same. Here are a few financial tips to get you started on the road to financial freedom.
1. Save for Emergencies
An unexpected expense can put a lot of stress on your finances. Are you prepared for a major car bill or health care bill? If not, you aren’t alone. In fact, most Americans don’t have enough money on hand for a sudden emergency.
With no money on hand, people turn to credit cards or payday loans. This high interest debt provides short term relief but can get you trapped in a cycle of never ending debt.
The best way to avoid that cycle of debt is to keep a small emergency fund on hand. $1000 is a good starting point and will allow you to take care of some surprise bills without having to rack up your credit card bill and put yourself into debt you cannot afford.
2. Choose Loans Wisely
Debt can be scary but there’s nothing to fear of if you have done your homework. Some debt can be considered good debt such as when it allows you to invest in yourself and your future.
Student loans can be considered good debt since getting a higher education has long term effects on your earning potential in life.
Of course, you have probably heard horror stories about student loans. Shopping around for the right loan is incredibly important to maintaining your financial freedom. Shop around online and use comparison tools to see different rates from different lenders to choose the best student loan for you.
In the same way you’re shopping for a car, be sure to budget for payments and understand the repayment structure. Many young people get trapped in high interest car loans that follow them for years.
3. Save for Retirement Now
It might seem crazy to start saving for retirement in your 20’s. You are just beginning your career, why look so far ahead?
Saving now builds a good foundation for the future. With compound interest, a small investment at a young age can grow to be larger than a bigger investment later in life.
It basically boils down to saving small amounts now and have more money in retirement. Your future self will thank you for this.
4. Get into the Habit of Budgeting
Whether you use pen and paper or an app on your smartphone, get into the habit of budgeting. Otherwise, you cannot be sure where every dollar is being spent. Doing a budget can be an eye-opening task and it can reveal areas where you can immediately save money. What would you do with extra money every month?
Financial Freedom Starts Now
Financial freedom is not just for people in their golden years. While financial freedom may be different in your 20’s, it’s just as important.
Reduce your stress and give yourself some freedom from money problems and bills. Use these tips to start building good habits that will stick with you for life.