6 Financial Goals for Your Twenties
Everybody’s financial goals are different, depending on their personal wants and needs.
People set financial goals for themselves to achieve a financially stable future. It is advisable to start setting financial goals in your 20s as this is the prime time to establish good financial habits that will pay off in the long run. By setting achievable goals early on, you set yourself on the path of financial freedom and security, and avoid the pitfalls of debt. Let’s look at 6 financial goals you should set in your 20s to help you achieve financial success.
Curate a budget that works for you and stick to it
Budgeting is an essential habit for anyone looking to manage their finances. The first step is to get your finances in order by organising bills, expenses and income. These include financial documents like bank statements, credit card bills and recurring expenses such as rent, utilities and insurance. Next, track your monthly expenses in categories like housing, food, transportation and entertainment, to identify any overspending and how to efficiently allocate your money. It is important for the budget to be realistic and achievable while reflecting your lifestyle and income. Be mindful to regularly check in and adjust your budget to adapt to the changes in life. By sticking to a budget, you can avoid spending beyond your means and build a strong foundation for your finances.
Focus on building your credit score
A credit score affects your ability to obtain loans and credit cards. It is calculated based on your credit history, payment behaviour and credit utilisation. One way to build your credit score is to manage your debts effectively by paying your bills on time and avoiding defaulting your payment. Keep your debt-to-income ratio low. Late or missed payments can significantly impact your credit score and it may take a while to bounce back from it. Another way to build your credit score, if you are debt-free, is to apply for credit cards. Set a low credit limit and use the card for regular purchases. Just make sure to pay off the balance in full each month. This demonstrates to lenders that you are a reliable borrower. By managing your debts effectively, using credit responsibly and monitoring your credit report, you can build a good credit score to improve your financial future.
Establish an emergency fund
Life is unpredictable, and unexpected expenses and losses, such as a medical emergency, job loss or major repairs required for the house or car, can occur anytime. By starting an emergency fund in your 20s, you are better prepared for these situations and can avoid going into debt. A rule of thumb is to aim to put aside 3 to 6 months of living expenses, including rent, food, utilities, transportation and other necessary expenses. Create an emergency fund by opening a separate account that is easy to access, low or no-fee and has a high-yield savings account. Then, set up automatic contributions each month to build your emergency fund over time. Having an emergency fund not only protects you financially, but also gives you peace of mind to weather life.
Create a retirement plan
While retirement may seem far off, starting to invest early can positively impact your golden years. The earlier you start, the more time your money has to grow, thanks to compound interest. Thus, even small contributions made early can turn into significant amounts over time. Create a retirement plan by envisioning the life you want to live in the future, then set achievable smaller goals to achieve it. It is advisable to consult with a financial advisor to create the ideal retirement plan tailored to your needs. Additionally, consider investing in a retirement insurance policy to set yourself up for a comfortable and secure retirement.
Start paying off debt
It is important to start paying off any debt you may have, such as student loans or credit card debts, as it can be a significant burden on your finances. It is advisable to start with high-interest debts first, as they accrue more interest over time. Start by making a list of all your debts, including the total amount owed, interests rates and minimum monthly payments. Next, prioritise your debts from highest interest rate to lowest. Consider making extra payments each month to pay off your debts as soon as possible to save on interest charges over time. While paying off debt can be challenging, it is a crucial step towards achieving financial freedom.
Invest in insurance
It is essential to understand the fundamental types of insurance, such as medical insurance, disability insurance, life insurance, auto insurance and homeowner insurance. Young adults are advised to buy comprehensive medical plans in Malaysia to help with your medical bills, while disability insurance provides a payout in the event of total and permanent disability. Life insurance safeguards your family financially in the event of your passing. Auto insurance is required by law and homeowner insurance protects your home and belongings from theft or natural disasters. By investing in insurance, you can protect yourself and your assets from financial hardship during unexpected events.
Additional tips
Start saving early for a down payment for a car or home. Invest in stocks and mutual funds to grow your wealth over time, but be sure to educate yourself on the risks involved and work with an advisor to develop a sound investment strategy. Furthermore, consider investing in your career development or pursuing a side hustle to increase your income. By taking a comprehensive approach to your finances, you can build a solid foundation for long-term financial success.
Conclusion
In conclusion, it’s never too early to start working towards a secure financial future. By curating a budget, building a credit score, establishing an emergency fund, creating a retirement plan and investing in insurance, you can set yourself up for a financially stable future.
