Last updated on December 26th, 2023 at 01:23 am
Let me preface by saying that the views expressed are my own. Finances are a very nuanced subject, and what works for me may not work for you. What follows is what I have found to work for me, and I’m simply providing it as an option worth considering. Having financial success in your 20s can mean different things to different people. Now… with the disclaimer out of the way, let’s continue.
You’ll meet a lot of people in life who want to tell you THE SECRET about finances. They want to sell you a course, sell you a book, sell you a Notion template, sell you an Excel template, etc. After a while, all the financial gurus become “blah blah blah” noise. When you boil it down to the basics, finances aren’t that difficult to understand. Many of the so-called professionals will use big words and pretty charts to wow you, but when you’re in your twenties, most of what they’re talking about is irrelevant.
When you’re just getting out of school, or just beginning your first full-time job, you need to keep your finances simple. Many young people get caught in the thrill of “extra” cash in their bank account and spend it frivolously on eating out, clothes, or toys. You’re grown now. Adulting means you adult, You must establish good saving practices early on if you want to start to see compounding growth as you continue throughout your life.
Maybe I’m a bit weird, but the semester before I started my full-time job as a software engineer, I blitz-read a bunch of finance books, like I Will Teach You To Be Rich, Financial Freedom, and others. Now, before you get all huffy and tell me those are a bunch of worldly books written by men who don’t rely on God, let me just say I was reading for the information, not the implication that man can do it all on his own. Though I had to wade through a lot of fluff and participate in some blatant money grabs (these guys literally get rich by telling YOU how to get rich.), I gleaned some good principles that I want to share here for those of you specifically looking for financial success. I’ve actually done this stuff myself, so I know it’s legit.
Get some budgeting software
But Saaaammmm… budgets are BORING. You must have missed what I said earlier. You’re grown now. Adulting means you adult, I know very few people in their 20s who possess the willpower to save properly without some sort of a budget in place. You’re reading this blog online, so I figure you must know how to use a computer. Welcome to the 21st century. These jokers can budget FOR YOU. Having a good way to visualize money coming in and out of your accounts helps you resist the temptation to spend needlessly.
I personally use YNAB, (If you’ve still got an active .edu email address, you can get a year free), but you can also use Mint, EveryDollar, or a good ol’ fashioned spreadsheet. I like the fact that YNAB assigns each dollar I make to a goal and lets me track stats like “age of money” and net worth. I’m so into it that I’ve actually turned it into somewhat of a game. At the time of writing this, my age of money is 73 days. Told you I’m a financial success geek. All that said, having a way to quickly see what you have, and what you’re projected to have, can help as you plan to do things like buy a house, buy an engagement ring, or take that fancy vacation.
Budget by Percentages
Everybody has different percentage figures that they want to assign to different areas of their financial life. I’m about to give you what I consider to be the best. This is the breakdown that I personally use, and it has contributed to me being able to get 2 months ahead on all of my expenses.
- Regular Expenditures (Rent, Electric, Cellphone, Water, etc.) – 60%
- Roth IRA – 10%
- Goals – 30%
- Long-term goal – 20%
- Short-term goal – 10%
A good rule of thumb is to invest at least 15% of your income toward retirement. To get the max match from my employer’s 401k, 7% of my paycheck comes out before it ever hits my bank account. If your employer offers a 401k with a match, you need to max it out if possible, otherwise, you’re leaving free money on the table. If you don’t max it, you’re seriously putting a dent in the power of compounding interest, since you’re not getting that interest snowball rolling early in your twenties. This means the timeline on achieving financial success has to be moved further out.
So, I have 17% going toward retirement technically, Then, I put 60% of my paycheck towards groceries, gas, rent, etc. From using my budgeting software, I’m able to see what I spend on average in each one of those areas every month. Once my 60% has covered the average expense in every category for the month, I move that 60% toward paying for the next month!
Goals are for whatever you want. I take 20% of my paycheck and put it towards long-term goals like paying off student loans, saving for a new car, or saving for a house down payment. My short-term goals are my fun money. This is where I put the money I want to spend on some new shoes, a guitar, or a nice watch.
By the way, remember me talking about those finance bigshots who were going to sell you a spreadsheet template? Don’t fall for that junk. Here’s a DIRT SIMPLE one for this percentage breakdown (for free).
Get Access to The Percentage Budget Calculator!
Have both savings and checking accounts
When I first started working, I got with Payroll in HR and had them route all my paychecks into my checking account…. and I just let it sit there. No bueno sir. No bueno. As of the time of this writing, the national average APY (annual percentage yield) on a checking account is 0.06%. According to Bankrate, nearly a quarter of people with a savings account earn a rock-bottom rate of less than 1 percent. At 0.06% APY, if I have $10,000 sitting untouched in my checking account in January, at the end of the year I’ll have $10,006. $6 is all I’d gain. Inflation is probably going to be somewhere between 3% and 5% in 2023, meaning I’m losing somewhere between $300 and $500 by having it sit there. So…BEST case scenario I lose $294. That’s absolutely dumb. That’s why you need a high-yield savings account.
I literally went and pressed a few buttons online and went from an account with 0.06 APY to 4.25% APY. So that $10,000 would be $10,424 before inflation, meaning I was that much closer to financial success. How did I do it? Online banks baby. Unless the ice caps suddenly melt tomorrow night, brick-and-mortar banks won’t be anywhere close to the rates that you can get online. Online banks avoid some of the costs that brick-and-mortar banks have, like physical property upkeep, and they pass those savings on to you. Just keep in mind that APY is variable and can change over the course of a year.
Brick-and-mortar banks know that most people are scared and lazy. All throughout our lives, we’ve been programmed to think of banks are impenetrable fortresses. That’s why they are built with great stone pillars out front or shiny thick floor-to-ceiling metal safes inside. In the movies, the banks have guards swarming the premises, and there are always red lasers crisscrossing the deposit box room. We associate this idea of maximum security with physical banks. The only problem is, most transactions are done in the cloud these days. More people are moving to card and contactless pay. There’s a Biblical reason for this, but we can discuss that later. The point I’m trying to make is, if the bank is FDIC insured, it doesn’t matter if it’s online, or brick-and-mortar, your money is just as safe in either place. You don’t need to be scared of moving your money to an online bank, AS LONG AS THEY’RE FDIC INSURED. If they aren’t FDIC insured, I don’t care if the APY is 10%, you’d be wise to leave it alone.
You also don’t need to be lazy. You’re in your twenties for crying out loud! You’re supposed to be a go-getter who’s ready to take the world by storm! Don’t just sigh and open a savings account at that brick-and-mortar bank just because you’ve ALWAYS banked with them. Don’t make the excuse about “I want to keep all my accounts consolidated under one institution”. Unless they’re offering some amazing package for you to have checking AND savings accounts with them, it is almost never worth it.
As far as reputable online banks go, I personally use Ally for my high-yield savings account. They have a decent mobile app, and, since it’s a savings account, I only move money into it a few times a month. Other good options as of the time of this writing would be SoFi and LendingClub. Do your due diligence and research what is best for you, but don’t waste another minute transferring money into a sub-1% savings account.
Reconcile your accounts
When I was a kid, I’d watch my mama flip to the ledger in the back of her checkbook, and add it up. line by line, payment by payment. She called it balancing the checkbook. I called it dumb. Why would I waste my time going over stuff I’d ALREADY paid for? I kept thinking it was dumb until I had $500 go missing at the end of the month that I couldn’t account for. That’s a bad feeling to have. You don’t know if you got charged wrong for payment, or someone stole your information, or if multiple payments were affected. You end up wasting hours looking at lines and lines of numbers. It’s terrible unless you’re one of those geeks who actually like accounting and balance sheets.
The best way to save yourself all that time and worry is to go ahead and get used to reconciling your accounts (which is the fancy way of saying, balance the checkbook). As we talked about earlier, you need to be tracking your outflow expenditures and cash inflow. At a set interval of time (I do once a week), take a minute to verify that you recognize all of the payments currently on that tracked list, and then compare them with your credit card, checking account, etc. This helps you catch errors if they occur and also gives you peace of mind in knowing that all your funds are where they need to be. It’s worth noting that some budgeting apps, like YNAB, can reconcile your accounts for you as well! There’s literally no excuse not to stay on top of this. If you aren’t being responsible in how you track your expenditures through reconciliation, then you are harming your chances of achieving financial success at a young age.
Put any payment you can on your credit card… but always pay off in full.
Credit cards aren’t evil. In fact, they’re the complete opposite. They’re wonderful tools you can use to build a good credit score, stack perks, and get cashback with. The problem many twenty-somethings find themselves in is they look at the credit limit on the card as free money. IT’S NOT FREE MONEY. Do you want to know the secret to never have credit card debt? Only put charges on the card that you know you can pay for out of your bank account immediately if you needed to. Do you want a new pair of Nike Dunks? If you have the money for it in your checking account, go for it. Pay for it with your credit card, then pay your card off at the end of the month. Or bimonthy. Or every week. The choice is up to you.
Unless the situation is dire and you have an unexpected emergency expenditure that you can’t afford to not pay, never carry a balance on a credit card and never make the minimum payment. Pay in full. Every. SIngle. TIme. The twenty-first most important goal in your life should be to make the credit card company lose money on you because you will be taking advantage of all their rewards, but never paying them a dime in interest on overdue payments.
If you’ve never used a credit card, start off by just paying for one reoccurring expense with it, like gas. When I was just getting started with credit (using a Discover Student Chrome card) sIngling it down to one expense really helped me get familiar before I began using it regularly. Fast forward to now, I’ve got over $200 in Amazon credit just from paying my bills in full every month with my Amazon Prime credit card!
Don’t be a penny-pincher
Don’t go to the extreme on either side. There are plenty of young people who spend like there is no tomorrow, but there are a few who are Scrooges in the making. Enjoy your blessings. Don’t store it all away for a day that may never come. Have goals that you are working towards, and when you meet the goal, spend the money. For instance, I eat a baloney sandwich for lunch every day. I could easily afford to spend $10 in the cafeteria for a meal, but I’d rather take that $200 every month a put it towards my goal of owning a Martin HD-28 acoustic guitar.
Those who don’t know I’m saving up for a $3,500 guitar might think I’m a little stingy for eating a baloney sandwich every day, but I have a goal in mind, and I’m steadily working towards it. Because I’ve skipped cafeteria lunch (something I don’t really care about), I’ve been able to save an additional $800 towards my guitar goal (something I do care about) over the past 4 months. When I get that $3,500 saved up I’m going to blow it all on a single purchase, and not feel a single bit of guilt about it, because I had a plan and I simply carried it through to execution.
Conclusion
When thinking about how to best achieve financial success, you have to have a number. Success to some may mean $1 million in the bank. Others may see it as the ability to take a vacation in the Bahamas once a year. Others may see it as the opportunity to buy nice things for their wives and children, Regardless of what it is to you, you need to make sure that the habits that you are building now are being used to bring that goal to pass sooner rather than later.
