Money Talks, So Should You

Q&A: Three financial habits to develop in your 20s

Erin Baehr
by Erin Baehr, NAPFA (@erinbaehr)

If you’re in your 20s, this may be the first time in your life that you’ve had any significant money of your own to manage. This is your chance to create good habits that will help you build a successful financial future, or to develop bad habits that will cause you grief, erode your finances, and, as with most bad habits, be difficult to kick.

When you first start earning money, it can be a lot of fun to spend it on things like going out or vacationing. And it’s okay to have a little “honeymoon” period and enjoy your newfound freedom, but sooner rather than later you need to settle down and get practical with your money. I’ve seen so many young people at tax time who look at their W2 without a clue where all that money went. Don’t be one of them!

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Start saving
The most important habit to develop is to not spend all that you bring home — in other words, saving. You may not feel like you can save much now, but start anyway, even if it’s only a few dollars. Set up automatic saving if you can, so your saving comes right from your paycheck before you even see it. Increase it periodically, and your spending will usually adjust. Building an emergency fund should be job number one, although if your employer offers a 401(k) match, you should contribute at least enough to get your maximum match as well.

Wait for what you want
The second most important habit to develop is the discipline of delayed gratification. Remember that your parents did not have the lifestyle they do now when they were in their 20s. Sometimes we forget that and want to have those things like a nice vacation and new electronics now. You can only spend money once, so if you spend it on a new iPhone, you can’t put it away toward a house or use it to pay down student loans. Think about three other things you could do with those funds before deciding to spend it on something.

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Plan for the future
Finally, get in the habit of planning for financial events ahead of time. You’ll have the regular things, like a car insurance bill that comes twice a year or holiday expenses, but also take a look around at your friends. How many will be getting married soon? Don’t forget to plan for things like wedding gifts or being in a wedding party. And don’t be afraid to say no if it will be difficult for you financially.

There are many good habits to cultivate that will help you financially, but these three are a good start and will give you a solid foundation to build on.

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Erin Baehr, CFP, is the owner of Baehr Family Financial, LLC. Baehr is a member of the National Association of Personal Finance Advisors (NAPFA), a fee-only professional association and a Dimespring knowledge partner.