2c:["$","$L2d",null,{"category":"$2e","relatedArticles":[{"id":"cG9zdDoyNTQ4MDI=","databaseId":254802,"postId":254802,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1417,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo1","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":5,"categoryId":5,"link":"https://smartasset.com/personal-finance/articles","name":"Personal Finance","postCount":{"pageInfo":{"offsetPagination":{"total":165,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"personal-finance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$2f","date":"2024-07-17T19:51:51","excerpt":"

Creating a financial plan in your 20s can have a big impact on your long-term financial health. Your 20s are a good time to establish sound financial habits, manage your debt and begin investing. By creating a budget, building an emergency fund and starting to invest, you create a strong foundation for future growth. The […]

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","

For help creating a personalized financial plan, consider reaching out to a financial advisor.

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Financial Planning for 20 Year Olds – Creating a Budget

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Making a sound financial budget is a cornerstone of financial planning for 20 year olds. By tracking your income and expenses, you can ensure that your money is allocated towards your essentials and get an idea of what you can save and invest.

","

In general, budgeting involves looking at your sources of income, then categorizing your expenses into fixed (like rent and loan payments) and variable (like utilities and groceries), as well as non-essentials (like entertainment). This gives you a clear picture of where your money is going and helps you identify where you can cut expenses. Depending on your goals and situation, there are a few different methods of budgeting that you can try:

","$3c","

Pay Down Debt

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Minimizing and eliminating debt should be another key part of financial planning for 20 year olds. It not only helps young investors have more money to save and invest, but can also improve your credit score, making it easier to qualify for loans in the future. Tackling your debt early also helps reduce the interest you’ll pay over the long term, as well as reduce your financial stress. The following are two of the most common debt reduction methods:

","

The snowball method: The snowball method involves paying off the smallest debts first while making minimum payments on the larger ones. Once the smallest debt is cleared, that payment amount is rolled into the next smallest debt. This creates a snowball effect. The psychological boost from eliminating your smaller debts first can also motivate you to continue eliminating your debt.
The debt avalanche method: The debt avalanche method prioritizes paying off debts with the highest interest rates first, regardless of the balance size. By focusing on high-interest debt, you minimize the total interest paid over time. This approach can save money in the long run, even though it might take longer to eliminate your first debt.

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Build an Emergency Fund

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","

Just because you’re in your 20s, doesn’t mean you shouldn’t be prepared for an emergency. Unexpected expenses, such as medical bills or car repairs, can strike at any time. And without a financial cushion, this can lead to debt and financial stress.

","

A common guideline is three to six months’ worth of living expenses. This provides a solid buffer for a variety of scenarios, such as job loss or a major health issue. For those just starting their financial planning in their 20s, such an amount might be difficult to save. Try reaching an initial goal of $1,000, then gradually increase the amount in your emergency fund over time.

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Start Investing

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Investing early is a key part of financial planning for 20 year olds. By investing early and taking advantage of the power of compounding, young investors can maximize their investment potential and set themselves up for a secure financial future and even retirement. Compounding is the process where investment earnings generate their own earnings, and it can exponentially grow your wealth.

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The following are two of the most popular options for those financial planning in their 20s:

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Bottom Line

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Financial planning in your 20s lays the groundwork for a secure and prosperous future. By budgeting effectively, managing debt, building an emergency fund, and starting to invest early, you can set yourself up for financial stability. Implementing good habits early on not only helps you navigate immediate financial challenges, but also positions you for long-term success and financial independence and security.

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Financial Planning Tips

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Photo credit: ©iStock.com/insta_photos, ©iStock.com/Tippapatt, ©iStock.com/AndreyPopov

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Saving for a down payment to buy a home is an important financial milestone. But doing so while paying rent and living expenses can be challenging, especially if you live in a city where those costs are significantly higher than the national median. Here are five ways you can save for a down payment while […]

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If you need help with your finances, a financial advisor can work with you to create a plan for your financial goals.

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1. Open a Savings Account for Your Future Down Payment

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One of the most effective strategies to kickstart your journey toward homeownership is to open a savings account specifically for your future down payment. Budgeting a small amount each month can help you reach that goal over time. However, you should look for an account that will offer you a higher interest rate than a traditional savings account. High-yield savings and money market accounts are popular alternatives as they typically earn more than the annual percentage yields (APYs).

","

One common way to budget for a down payment is to follow the 50/30/20 rule, which recommends spending 50% of your money on needs, 30% on wants and saving the remaining 20%. This can help you get a clear idea of your budget and map out how much you can spend and save for different needs and goals.

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2. Cut Your Monthly Expenses

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Cutting monthly expenses is another common way to find money that could be saved for your down payment. The first step towards reducing monthly expenses is identifying common areas of overspending. One example could include overspending on eating out and entertainment, which can cut into your savings goals.

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Other common areas where people typically overspend include luxury goods, subscriptions and impulse purchases. Being aware of these spending habits can help you recognize and rectify potential financial pitfalls.

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3. Get Out of Debt

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Many individuals find themselves burdened by debt, which can be a major obstacle in saving for a down payment. Understanding how debt can limit your ability to save effectively is the first step towards financial awareness. And, depending on the size of your debt, you may have to pay it down substantially before you can shift your focus to other savings goals.

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One common strategy to help you manage and repay debt, is the avalanche method, which prioritizes debt with the highest interest rate. So, if you have a $6,000 credit card debt with a 20% interest rate, a $2,000 personal loan with a 9% interest rate, and a $7,000 auto loan with a 6% interest rate, you would focus on paying off your credit card debt first.

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Another debt repayment strategy would be to do the complete opposite: Focus on the debt with the smallest balance, while making minimum payments on other higher balances. This strategy can motivate you to pay down parts of your debt faster.

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4. Earn Money From a Side Hustle

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With more Americans working remotely, and industries offering more flexible hours and contract work, you may find another solution to save for a down payment by taking on a side hustle. This is essentially a secondary job or business that is separate from your primary source of income.

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There are many side hustles available that cater to specific skill sets and interests. From freelance writing to tutoring or selling handmade products online, each option offers a unique opportunity to generate extra income while also developing new skills and in some cases even allowing you to pursue career interests and passions.

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5. Apply for Down Payment Assistance Programs

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As a first-time homebuyer, a down payment assistance program could be another path to achieving your homebuying milestone. These programs are designed to help first-time homebuyers, and individuals with financial constraints, afford the initial payment required to secure a mortgage.

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There are state-specific programs, grants and even loans for specific professions. The California Housing Finance Agency, for example, offers low- and moderate-income homebuyers financing options and programs that focus on equity, while the Homes for Texas Heroes Program offers home loans and down payment assistance to public service professionals, such as teachers, police officers and firefighters.

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Other Costs to Consider When Buying a Home

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Buying a home is a significant financial decision and involves additional costs beyond the principal price. While the listing price of a house might be the first figure that catches your eye, it is only the tip of the iceberg when it comes to the total cost of homeownership. Here are some other costs that you need to pay attention to:

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Bottom Line

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Saving for a down payment while renting can be challenging, but by taking a strategic approach can help you reach that goal over time. Opening a dedicated savings account, cutting down on monthly expenses, managing debt, exploring side hustles and applying for down payment assistance programs are five common strategies that can help you reach your goal faster.

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Tips for Saving Money

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Photo credit: ©iStock.com/courtneyk, ©iStock.com/designer491, ©iStock.com/vitapix

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Keeping your money in a savings account is a good way to keep a certain amount of money separate from your daily spending. While most savers prefer to keep their money in a single savings account, it’s possible to have more than one. Whether that strategy makes sense will depend on what your goals are and how much money you’re saving. Working with a financial advisor can be the easy way to figure out if this is the right strategy for you and how to execute it.

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When You Should Have Multiple Savings Accounts

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Opening your first savings account is the first step toward achieving your savings goals. However, you might have some savings goals that are more short-term and some that are more long-term. Before making a decision, consider a few different savings goals, such as:

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Establishing an emergency fund
Saving for a trip to Europe
Opening a college fund for a child
Saving for a home

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Not only do each of these goals have different time frames in terms of when you will need the money, but you may want to save money for more than one goal at a time. Any of these things can change how you use your savings accounts and when you should open a new one.

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You may not want to drain your single savings account when it’s time to take your big trip as that would mean leaving nothing for your emergency fund or your house fund. Thus, while you can stick to just one savings account, having multiple accounts can make it easier to keep things separate.

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How to Manage Multiple Savings Accounts

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When set up properly, managing multiple saving accounts isn’t difficult. First, decide where you will keep your money. Options include a savings account at your bank, an online savings account or a cash reserve account.

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It’s worth noting that some savings accounts allow you to create multiple savings goals – some call these savings “buckets.” That is something to look for as it might allow you to maintain a single account with a few savings buckets.

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Once you have decided which account(s) to use for your savings, the next step is to decide how much to allocate to each goal every month. You can then link your bank account and set up automatic monthly transfers to each goal.

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Pros and Cons of Multiple Savings Accounts

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Having multiple savings accounts comes with its own set of pros and cons. Keep in mind that the importance of each will depend on what’s important to your financial plan or goals. Here’s what to consider before getting started:

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Pros

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Keep goals separate: It’s easier to keep separate savings goals separate. Since each account has a distinct purpose, you don’t have to worry about making sure your vacation fund doesn’t deplete your house fund and vice versa.
Sign-up bonuses: Some savings accounts have sign-up bonuses, meaning you could take advantage of multiple bonuses. These bonuses usually aren’t as lucrative as credit card sign-up bonuses, but every bit helps.
More cash insured: While the average person doesn’t have more than $250,000 in cash at any given moment, that is the maximum amount insured by the FDIC. In other words, if you have $275,000 in a savings account, $25,000 of it won’t be insured. But if you open another savings account at another bank, not the same bank, and transfer the $25,000 to the new account, the entire $275,000 will be insured.

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Cons

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Bottom Line

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Having multiple savings accounts can be a great way to keep your savings goals separate so they don’t interfere with one another. You wouldn’t want to deplete your house fund because you decided to take a nice vacation. Also, keep in mind that some savings accounts allow you to create multiple savings “buckets” which might allow you to maintain a single savings account with multiple savings goals. The right savings strategy for you will depend on what your overall financial goals are and how much money you have available to help you reach those goals.

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Tips for Saving Money

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The key to gaining financial security is to set financial goals and keep re-evaluating your progress. Without working toward anything specific, you’re likely to spend more than you should without realizing it, leaving you vulnerable to life’s unexpected moments. Financial planning doesn’t have to be difficult. You can speak with a financial advisor, who is best equipped to help you on your way to financial success, or you can educate yourself, sit down and write up a list. Follow this financial planning checklist and keep track of your financial planning goals for a firmer financial future.

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Annual Planning Checklist

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An annual financial plan is a way to re-evaluate your financial goals. While you may have already made a complete financial plan in the past, financial experts recommend annual check-ins to evaluate how your situation has changed over the preceding year. You’ll take your long-term financial goals into consideration and check off your progress. Here are the things you should consider evaluating.

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1. Take a Personal Inventory of Your Finances

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An annual personal inventory gives you a snapshot of your financial status, which makes it easy for you to compare your progress from any given year. If you have an inventory from last year–great news! Update it for this year, and you can easily compare across categories. If it’s your first time, this is how you make one:

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Write a list of your assets and the amounts. That includes how much you get paid, savings, your retirement account values, any real estate equity, etc.
List your debts. This is where you add up your mortgage, your car loan, your student loans and credit card balances.
List your credit utilization ratio. This is the amount of debt you carry versus your total credit limit, and it lets you know exactly how much you rely on credit to get by.
Take a look at your credit report and credit score.

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Evaluate the shape of your finances by comparing your financial snapshot with your financial plan. If your goal is to pay off your debt, have you made any progress? If you wanted to save more for retirement, did you add to your assets column?

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2. Evaluate Major Life Changes

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As part of your annual financial checkup, you’ll need to consider how your life has changed over the past year and how you think it may be in the next. Do you anticipate any big changes? Are you considering changing jobs? Will you be getting married? Moving?

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If you have a family, have you already started thinking about saving for your college education? If you have elderly parents, have you considered long-term care insurance in case one or both become incapacitated and need assistance? Evaluating these life changes may result in a shifting of your financial goals.

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3. Adjust Your Savings Plan for Retirement

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Saving for retirement requires its own section since it’s both a larger and longer-term goal than others. Whether or not you’ve already begun saving for retirement, you should evaluate what tax treatment is best for you as time passes.

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Depending on your marginal tax rate, is a traditional or Roth retirement account appropriate for you?
Is now a good time to convert your traditional IRA to a Roth IRA?
If you have leftover 401(k) funds from a past employer, now is a good time to roll over those funds into your current 401(k) or a corresponding IRA.
Evaluate if you’ve maximized your contributions for the year and adjust your contributions accordingly.

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4. Evaluate Your Investment Portfolio

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In addition to checking your retirement accounts, you’ll also need to conduct your annual investment portfolio check. Financial experts recommend reviewing your portfolio asset allocation at least once a year, buying and selling assets to realign your portfolio with your desired allocation profile. If your financial situation and goals have changed, now is also the time to rebalance your portfolio and ensure your investments follow your desired diversification strategy.

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One point to take into consideration is how your reallocation or rebalancing will affect your taxes. When you buy and sell assets, consider how employing tax strategies like tax-loss harvesting may help you reduce your tax burden and save more over the long term.

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5. Review Your Insurance Coverage

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Since you’re checking your finances, don’t forget to review your insurance coverages. Homeowner’s or renter’s insurance should be reevaluated yearly to make sure that the coverages will be enough to pay for any insured damage in the event you need it.

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Make sure that you’re covered in case of an accident or disability, as these types of major changes can also heavily affect your future financial picture. Consider changing your health insurance or contributing to a health savings account so that you can rest assured that you’ll be able to cover medical costs if necessary.

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6. Update Your Estate Plan and Associated Documents

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Lastly, you’ll need to evaluate if you’ve prepared an estate plan in case of your passing. If you have, make sure it’s updated to reflect your intentions and consider signing a durable power of attorney as part of your estate plans.

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If you haven’t, consider speaking with an expert to plan how to transition your estate. It may be beneficial to transfer some to your heirs ahead of time, both to ensure your intentions are properly realized and to benefit from certain tax strategies.

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Bottom Line

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Reviewing your financial plan annually is a valuable tool for ensuring you meet your goals. You’ll be able to measure yourself how much progress you’re making, which can help keep you moving forward. A financial plan can give you peace of mind about your finances in the future, so don’t wait–go through your financial planning checklist today.

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Tips for Building Wealth

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