If you’re in your 20s, your net worth might be the last thing on your mind. But it’s never too early to start creating long-term wealth. Many twenty-somethings are financially challenged, but it’s possible to maneuver around wealth-blocking obstacles if you know what they are. If you’re trying to boost your net worth, here are five things that could keep you from achieving that goal.
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1. Living Without a Budget
Budgets get a bad rap because they place restrictions on what people can spend. But that’s not really what a budget’s designed to do. A budget is supposed to help you manage where your money’s going each month.
If you’re drifting through your 20s without a plan in place for how to spend your extra cash, you could face an uphill battle when it comes to saving. Without savings, your net worth isn’t going to grow.
2. Paying High Interest on Student Loans
Student loan debt has become a fact of life for millions of 2o-somethings and for some of them, it’s preventing them from achieving their financial goals. Unfortunately, there’s no way to wave a magic wand and wipe out debt. But you can do something to make it easier to cope with the payments.
Refinancing your loans and locking in a lower interest rate could make your debt easier to pay off. Once it’s gone, you can put the money you were spending on loan payments into a savings or investment account.
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3. Letting Your Career Lag
Chances are, by the time you hit your 40s or 50s you’re going to be making a lot more money than you are now. But that doesn’t mean you should just sit around doing nothing until a bigger paycheck starts rolling in. If the job you have isn’t your dream job yet, it’s a good idea to take time to develop your skills or seek out a mentor.
By putting more effort into your career in your 20s, you’ll be able to see a bigger payoff later on in terms of your net worth.
4. Neglecting Your Retirement Plan
If you’ve landed a job that comes with a 401(k) or another qualified retirement plan, you could be sitting on a net worth gold mine. Stashing money in one of these plans in your 20s – even if it’s only 10% of your salary – can make a huge difference in how much wealth you’re able to accumulate.
If you don’t think you can set aside 10% of your pay for retirement, it’s a good idea to at least save enough to qualify for your employer’s matching contribution. That way, you’re not missing out on any free cash.
Find out now: How much do I need to save for retirement?
5. Flying Without a Safety Net
It’s a good idea to make saving for retirement a top priority, even when you’re in your 20s. But a 401(k) or IRA isn’t the only place where you’ll need to put the money you’re socking away.
Establishing an emergency fund in your 20s is important if you don’t want to end up in a debt hole after paying for an unexpected cost. When you’ve got three to six months’ worth of expenses set aside you won’t have to rely on a high interest credit card if something like a pricey car repair comes up. The less debt you take on, the easier it’ll be to stay in the black.
Unless you inherit a fortune or win the lottery, your net worth needle isn’t going to move much in your 20s if you’re not making an effort to give it a boost. Sidestepping these obstacles and creating an action plan for how to spend and save can put you on track to a better financial future.
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