One of the biggest regrets I have is that I didn’t start properly planning my finances in my 20’s. I am now 40, and my pension has barely begun. This is something which is obviously going to have a knock-on effect in the future, as I face the consequences of this financial neglect.
So I am determined that this should not happen to anyone else. So this article today is dedicated to all you 20-something non-savers out there. Let’s roll the music and dance.
Should I Buy a Home Or Rent One?
This is probably the biggest decision you will have to face. Owning a house is seen as a milestone in life – who has the biggest and grandest place, how many turrets, how many sharks in the moat, archers in the tower with orders to shoot on sight, that sort of thing. If you have a castle, you are seen as hugely successful, while if you have a house belonging to Bilbo Baggins, then you’d better quickly claim to be a hobbit if you don’t want to be laughed at.
But there are downsides to owning. One of them is being solely responsible for all maintenance on the house, and the value of the property may dive, leaving you with negative equity. Renting on the other hand frees you from all that. So it’s time to get the ol’ calculator out to crunch some numbers.
The New York Times has a really cool interactive calculator, which shows you when it makes more sense to rent than to buy. Just move the sliders along to see different factors at play, and see where the magic number lies before it’s time to consider buying.
Forbes also has an outstanding article on the subject which is essential reading if you are considering this all-important potentially life-changing issue.
Should I Have a Credit Card Or Not?
We’ve all seen it in the movies when James Bond, or some other glamorous spy, pulls out their platinum credit card to pay for everything. This leads us ordinary folk to think that we too should have platinum cards, and enjoy the James Bond life. Cue massive credit card debt, and the repossession of the Aston Martin.
In many ways, the credit card companies have to take a lot of the blame. They deliberately target students on campus, offering nice gifts for signing up for a card. Unasked for and unwanted cards are also often mailed to people, and the temptation to spend is right there. “with that card, I could get an iPad”, you think. And the debt mountain begins from there.
If you do get a card, I only have two pieces of advice for you, based on previous brutal experience. Only get one card (choose Visa or Mastercard, but not both), and secondly, keep the credit limit low, to say $500. And resist the company’s attempts to raise your limit! My company wants to give me 10,000 Euros credit. How stupid and reckless is that?
There is a huge amount of information online about the pros and cons of getting a credit card. A lot of it is conflicting, so you need to read it all, and decide for yourself. The always-reliable about.com site has a page which takes the most common misconceptions about credit cards and knocks them down one by one. Investopedia disagrees with me about the number of cards you should have (that’s OK, I forgive them), and they also give you 10 reasons why you should use a credit card. There are things you should never put on a card if you have one, and the ever-reliable Forbes gives you all the basics you need to know.
When Should I Begin a Pension?
Nobody likes to think about being old, especially when they are in their wild and swinging 20’s. When you’re that young, pension age seems so far away, so you forget about it, and tell yourself vaguely that you’ll do it “sometime in your 30’s”. Big mistake. You are then suddenly 40, and realize that your retirement is only 25 years away, and you don’t fancy eating cold baked beans from a can every night.
So starting a pension in your 20’s is a very wise move. That gives you an average of 40 years to get your money together, and instead of cold baked beans in a can, you’ll be feasting instead on steaks, caviar, and champagne.
This calculator will help you figure out your future social security income, and this one will help you figure out how large your pension will be, based on various factors that you input in. And if you get stuck, the Pension Rights Center offers free help. So don’t despair. Help is there. As for which companies to put your money into, The Simple Dollar gives you 10 good ones.
Should I Get Insurance & If So, Which Ones?
One of the common complaints I often hear is how much in premiums they are paying for various insurances, and that they are “never likely to claim from them”. So they see it as a total waste of money. Well, it is good that you haven’t had to claim anything as that would imply some big calamity hasn’t occurred. But it would be a big mistake to overlook it (and illegal too, if you don’t pay car insurance, for example). You never know what will happen today, tomorrow, next week, or next year. Life is extremely unpredictable.
The ones you should be focusing on are home insurance, life insurance, health insurance (Obamacare – or as he calls it, MeCare), and car insurance. You may also want to consider some kind of private liability insurance, in case you are sued for something.
How Much Should My Emergency Fund Be?
As well as the bank account holding your regular amounts coming in to pay the bills, you also need a savings account purely for the emergency fund (or a piggy bank under the bed). This is money you should not touch under normal circumstances. It’s only there for “oh hell” situations such as the car needing repairs to get you to work, a medical procedure not covered by your insurance, and for paying the bills if you suddenly become unemployed.
There’s no rule of thumb for how much you should save. Obviously the more you can put away the better. But if you can put away up to 6 months of what you make each month, then that would be fantastic, and would keep you going through the rough patches. This calculator will help you figure out how much to squirrel away.
Should I Have Children?
Ah the little darlings. But despite all the joys that parenthood brings, those little darlings can cost serious money over time. And if you are in your 20’s, and considering being a parent, there are a lot of financial considerations to take into account. The BabyCenter goes into the pros and cons, there are 8 reasons to have a baby in your 20’s, and HowStuffWorks goes in-depth into the issue.
It’s a serious life-changing event which can be both joyful and stressful. Which one you make, depends on how much advance preparation you put into the subject.
Should I Have a Second Part-Time Job To Make More Money?
Never having enough money is always going to be a problem in your 20’s. Your career will still be developing (which is another way of saying you’ll be earning slave wages), and there are things you will want to have. Nice clothes, the latest smartphone, a car….if the main job doesn’t cut it, then you need to consider doing a part-time second job as well.
See if you have a hobby or a skill which you can monetize. Good at writing? Then apply to MakeUseOf for a possible position. Do you love doing graphic design? Then publicize your portfolio and do design jobs. Do you play an instrument really well? Then offer music lessons.
If you don’t have any skills or hobbies you can monetize, then just hit the various restaurants, bars, and fast food joints. Or look at the 25 highest paying part-time jobs in the US, Forbes’ advice for women considering a second job, and WikiHow even shows you how to find a job, using pictures!
So What Have I Missed?
I’m sure there are other questions that 20-somethings need to consider, that I have forgotten. So use the comments section below to set me straight. What were your priorities in your 20’s?
Image Credits: rain of money Via Shutterstock