So, you've finally graduated from your university and landed that first full-time job. Congratulations -- all that hard work has finally paid off!
With all this newfound money coming your way, it's a good time to do some financial planning. Your 20s are the perfect time to set up a strong foundation that will help you in the upcoming years as you get married, buy a house, and have children.
Are you unsure how to plan for your future? Keep reading as we go through a complete checklist for financial planning in your 20s.
Make a Budget
If you lived in an apartment during school, creating a budget might not be anything new. But if you were just making enough to survive, your budget will look a little different now.
Once you receive that job offer and learn how much you'll be making, you should start on your budget right away. The 50/30/20 rule is a great guideline to help you properly allocate your money.
According to this rule, 50 percent of your income (after taxes) should go towards necessities. This includes things like groceries, rent, and car payments.
Thirty percent goes towards anything you want, but don't absolutely need. Things like eating out, traveling, partaking in your hobbies, and shopping fall into this category.
Lastly, 20 percent of your income should go towards your future financial health. This could be building a savings account, emergency fund, retirement fund, and paying off your debt (all of which we'll talk about a little later.)
Limit Unnecessary Spending
Once you create your budget, spend a few weeks, or months, tracking your spending. Make sure everything is following this budget and adjust as necessary.
For example, if 70 percent of your income is going towards necessities, you may want to look into getting a cheaper apartment or finding a roommate to split the costs. Similarly, if you're overspending on non-essentials, try to cut back on how often you eat out or go shopping.
As you'll soon see, financial planning in your 20s involves a lot of saving to prepare for your future. If you're able to live below your means and really cut your spending, you'll have more money to put towards your future financial health which will help you in the long run.
So, if possible, try to alter the 50/30/20 rule so that you spend less on necessities and wants and more on your future financial health.
Get Out of Debt
The average Canadian now graduates with over $22,000 of debt. The problem with debt is that the longer you have it, the more you'll pay in interest.
The best financial advice for your 20s is to pay off that debt as soon as you can. Now, nobody's expecting you to be out a debt in a year or two. But, try to pay a little extra every month if you can, so those debts can get paid off faster.
Build Your Savings
Did your car ever break down at the worst possible time? Maybe you were still a student and only had $60 in the bank. That $250 repair bill was crippling.
The goal for your savings is to have enough to cover these inconveniences, whether it's your car breaking down or your beloved pet needing a vet visit.
You'll also want to set up an emergency fund. Some people opt to keep this separate from their savings while others keep them together. Ideally, you'll want to build up your emergency fund, so it contains enough money to cover a few months of living expenses in case you lose your job or are out of work due to an injury or illness.
Start a Retirement Fund
When you first join the workforce, this is probably the furthest thing on your mind. However, it's important to start saving for retirement in your 20s, so you don't end up panicking at 60 because you don't have enough.
Read up on your options and make a plan to save for retirement. Even if you can only contribute a little to an RRSP, that's better than nothing.
Buy a House and Wedding You Can Afford
Your 20s will be full of a lot of life-changing (and expensive) events. If you're unmarried and renting an apartment, you may have these huge ideas of your dream wedding and perfect home.
It's all too easy to fall into this trap and buy a house or have a wedding that you really can't afford. But, you'll want to avoid this! It can make financial planning much harder in the future.
One thing you shouldn't skimp on, though, is mortgage insurance. It's a great way to get a better interest rate on your home even if you have a small down payment.
Look into Insurance Options
Nobody likes to think about all the bad things that could happen to them, but it's an important part of financial planning.
During your 20s, you'll want to research various insurance options, including life insurance and home insurance. These could be a huge help in case the worst does happen.
Of course, you'll also want to look into health and dental insurance, too. It's always a good idea to get a comprehensive plan so you're covered for anything that happens.
Tips for Financial Planning in Your 20s
You may think that you're 20s are a time to be carefree. But, in reality, this is the time you want to be planning for your future. Financial planning in your 20s can be hard to navigate, but just follow our checklist to ensure you're taking the right steps now for a great future.
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