20 years old. A new adult. The first few years of adulthood, independence and individuality. So many new concepts and so many unknown paths beckoning the young adults to follow. In the age of internet and “infinite knowledge”, there is a large amount of bad advice out there mixed with the good. It is important to ID the good behaviors and advice before any patterns are formed during young adulthood, as these patterns – either good or bad, can embed themselves in financial life for years to come. Whether you are a parent of a 20-something year old (or will be soon) or you are somewhere in your 20’s, this is advice for you.

  • Budget your Cash Flow – No matter your position and income, you cannot start the financial journey until you budget your Cash Flow. The word “budget” has negative connotations – a 20 page spreadsheet with ancient formulas. It does not have to be like that at all. A successful budget needs only a few numbers identified, and your understanding. Once you ID your monthly (or bi-weekly) income, you need to ID your expenses – what you need to spend your money on, and what you want to spend your money on – note which is written first. Whether you are working part-time during college, or have your 1st/2ndadult job after-college, planning out where your money goes every month is a great first step towards controlling it –you cannot harness something you are unaware of.
  • Get Insured – Even if you have really financially savvy parents or friends that assist you with other forms of advice here, this is one that is often skipped. Insurance covers many types products.
    • Health/Life -You are young. For personal health insurance, most young adults are not expensive to insure. Unless you are a smoker, the fact that you are in your 20’s typically places you at the top of the preferred tier for health and life insurance. If you are working at a firm that offers health and life insurance, you should seldom refuse. Even if your employer does not cover 100% of it, you can have (even if basic) coverage for your health care & life insurance for pennies of what your parents would pay.
      • If you are on your parent’s health insurance, you likely will not be offered a better plan, so ride that out until 26 (if you are nice to your parents). But at 25, you should know everything you need to know about your next plan and jump on it right away so as not to have a gap in your coverage.
    • Renter’s / Homeowner’s – Likely earlier in your 20’s you will be renting – especially if near a college campus. Later in your 20’s some of you will opt to stop renting and buy a house – preferably once you have work stability. You need both types of insurance, because well, the younger you are, the less money you have to “self-insure.” All that this means is that if you have any issues within the apartment or house, you are not hit with a significant financial burden. The younger and less financially stable you are, the more these types of insurance make sense.
    • Car – Even if you are on your parent’s insurance for now, it does not mean you can be a reckless driver racking up points on your license from traffic and accident tickets. The more of each of those you get, the more expensive it will be to stay insured.
  • Live within your means – This is one of the most important pieces of advice and my favorite. This cannot be stressed enough, and applies to people in their 20’s universally. No matter how much income you make yourself, or how much your parents assist you, identifying your means and living under that line is crucial. “Live within your means” sounds like an archaic line of advice boomers give to younger folks on TV, but this particular piece actually makes sense. After following the steps from “Budget your Cash Flow” above, and you have a clear picture of what you can spend, you make the choices on what to spend it on. A popular example that was very tempting for me in my younger 20’s, and especially when I started earning my own money, was to not curb unnecessary spending. If you have $750/month to spend on a car/month, or your parents are offering you this amount, there is no need for you to lease a new series BMW. Why not get something more reliable, frugal and financially sound? Use $250/month on the lease or financing payments and the rest for the next point.
  • Save, Save, Save! – Again, you are young. I don’t mean save the money under your mattress – absolutely the opposite actually. First step is to develop an Emergency Savings – most effective account type for this is the “High-Yield-Savings-Account (HYSA)”, but a cushion of ~500-$1,000 in your checking account that you don’t touch is a great start. A sign of great financial health is not having to ask your parents for money for a blown tire or a broken house appliance. That is true adulting. The next step is investing. You always hear “saving for your retirement now will take years off the time you have to work”. But you do not have to hide away all of your money until you are 59 ½. If you do not mind, it is best to take advantage of Roth IRA’s – the less money you make a year, the better. If you do mind locking up your money for a while, start with a Brokerage account. There are more Millennial / Gen. Z alternatives that fill this demands as well – Acorns and Robinhood being the most prominent. Robinhood actually gives you a free stock share just for signing up. Whatever you do choose, most important part is to be aggressive. 100% equities (stocks, mutual funds) should be the norm in your accounts – no cash, as it earns practically nothing.

There are plenty more points to discuss, from building your credit score to avoiding financial money pits. However, this is a compact outline of where to start and what to do as you are getting out there into the unknown and trying to make a name for yourself. The internet is chock full of bad advice – make sure to do your research (fact check everything) and don’t get disheartened when faced with some truths of financial adulthood. It will all click into place eventually. Step by step.

Sources:

https://www.kiplinger.com/article/saving/t063-c006-s001-10-financial-commandments-for-your-20s.html

https://www.ellevest.com/magazine/personal-finance/money-in-20s

https://jarredbunch.com/10-critical-things-to-do-with-your-money-in-your-20s/

https://www.thebalance.com/money-steps-in-twenties-2385840

https://www.cnbc.com/2019/08/06/4-money-choices-to-make-in-your-20s-if-you-want-to-be-rich-in-your-30s.html

https://www.nerdwallet.com/article/finance/manage-money-20s