Just for the record, your 20s is not a throwaway decade. While it is expected that you will make tons of mistakes when it comes to your finances, it is not expected that you will habitually make money mistakes all willy-nilly for a full ten years. So in order to get your financial priorities in check, I’ve come up with five things to make sure you spend your coins on before you hit the big 3-0.
Make sure you check the following things off your financial bucket list:
1. Create an emergency fund.
Your emergency fund should be at least six months of your total expenses and be kept liquid and safe from fluctuation in a savings account or money market. This financial cushion gives you peace of mind in the event of a layoff, a car repair, or an injury.
The Social Mirror Theory states that people are not capable of anchoring their self-concept and self-perception without taking into account others’ viewpoints. Even though this theory speaks to general social interactions, we know that this is applicable to how we spend money. If your friends are spending like crazy throughout their 20s, then you are more likely to pull out your wallet once your crossover into being a big girl in your 30s.
3. Pay down your debt systematically.
Use your 20s to create healthy financial habits when it comes to paying off debt. The two most popular strategies for tackling debt are the “high-interest” approach and the “smallest balance” approach. With the former, you pay your bills with the highest interest rate first.
The rationale behind this strategy is to get the most financially draining bill out of the way first. With the latter, you pay your bills with the smallest balance first of its psychological impact. There is an immediate sense of accomplishment and progress when one bill is completely accounted for.
One method is no better than the other; as you get older, your preferences may change, so stay open to using both approaches.
4. Start saving for retirement.
There is a saying, “old fools were once young fools.” There is no better way to use your youth to your advantage than to start stashing away some funds for your post-work years. Compound interest is on your side. Speak to your human resources professional, accountant, or financial advisor for some guidance on your options and to help you calculate how much you will need to retire.
5. Manage your credit.
You will not be living the young, broke, and fabulous life forever. There will definitely come a time when you mill want to buy a home, car, or start a business. For each of these, you will need to leverage your credit score to apply for loans. So, while you are in your 20s, get into the habit of paying your bills on time, refraining from overextending your credit, and opening unnecessary accounts.
6. Splurge on a meaningful experience.
Money is not only meant to be saved, it is meant to be enjoyed. Make sure that you identify something that you love to do, and then do it without guilt. The memories that you create will be well worth the money spent.
Connect with Kara @frugalfeminista. Learn more about The Frugal Feminista at http://www.thefrugalfeminista.com
Check Out This Gallery Of Tax Questions You’ve Probably Asked:
1. Your Income Tax Cheat Sheet
Even if you decide to handle the filing of your taxes solo, it is always important to know and seek the advice of a tax advisor/accountant, who can offer valuable information and point you in the right direction for optimum returns during tax time. This includes proper deductions, organizing year-round and reducing your tax stress. You're welcome.
2. Be Mindful Of Holiday Bonuses
It's always a great feeling to have that bonus check in hand, but sometimes it may not be the optimal scenario for your tax accountant. Boosting your income by a slight margin could shift you to a higher tax bracket for the year, offsetting your bonus and then some. Consider if it's better to realize your bonus in 2013 or 2014 and inform your employer accordingly.
3. Consider Charitable Donations
Giving to charities can carry tax deductions, helping you save on your IRS payment. If you need to get in a gift during the year of 2013, you can count the donation via credit card as long as you sign up for the payment by December 31. Just be careful of fraudulent charities, which the IRS has been warning people about for years.
4. Prepare For Tax Season
If you have a few extra minutes away from work and the family, maybe you can unwind over some tax documents. While it isn't most peoples' idea of a good time, creating a tax checklist and gathering together all relevant documents for the year before next year's become scattered everywhere can be a serious time saver come April.
5. Keep Track Of Deadlines
Deadlines can creep up at any time and in any shape or form. Some deadlines for income considerations can be at the year's end, so there's certainly plenty coming up in the near future. While the official filing deadline is April 15, the work doesn't start then — and shouldn't start the day before that — so plan out your time to meet the different deadlines of various parts of the tax code.
6. Don't Forget Retirement Savings
A great way to save money on taxes is by having a properly structured retirement plan. Both 401K and Roth IRA plans carry tax implications of various shapes and sizes, and planning ahead for retirement isn't the worst thing to do, either. By balancing contributions, the savings can really add up once tax bracketing is considered.
7. Consider The Child Care Credit
The IRS published an entire post about the child care credit earlier this year, in which the agency explained exactly how to use the credit and under what circumstances it is appropriate to file for it. Since it runs year-round, there's no better time to jump on board than now, and you just might save a dollar or two. Child care credit: http://1.usa.gov/1gKgeFf
8. Lump Medical Bills
There are thresholds for which medical bills become deductible if they total a certain percentage of your gross income (10% for most people is standard; however, it varies depending on circumstances). If you can lump your medical bills into this year or the next, you may become eligible for the effective tax deduction. This could involve prescriptions, getting new eyewear, extra checkups and prepaying plans.
9. Rashida Maples, Esq.
Rashida Maples, Esq. is Founder and Managing Partner of J. Maples & Associates (www.jmaplesandassociates.com). She has practiced Entertainment, Real Estate and Small Business Law for 9 years, handling both transactional and litigation matters. Her clients include R&B Artists Bilal and Olivia, NFL Superstar Ray Lewis, Fashion Powerhouse Harlem’s Fashion Row and Hirschfeld Properties, LLC.