How many people have you met in their 30s or
40s who are still digging themselves out from poor financial choices during
Your late teens and early 20s are an age where
you feel wedged between childhood and adulthood. You’re financially independent for the first time,
but you don’t have the experience to fully appreciate how financial mistakes
made when you’re 21 can follow you for years — or even decades.
Everyone’s 20s are a gift, but they’re also
the most financially vulnerable years of your life. You haven’t made much money
yet, you don’t have much of a credit history, and you haven’t yet had the time
or freedom to build good financial habits. But you can change all that by
taking advantage of some of the financial products available to your generation
that even those in their late 20s right now didn’t have. Let’s explore some of
the tools that can help you extend the freedom of your young adult years into
full-on adulthood later.
Budgeting Apps to Set Good Habits Now
The average 20-to-24-year-old makes around $30k a year when working full-time. It feels
like a lot more than your summer job in high school, but it is by no means a
lot of money, particularly when you have bills to pay. And if you can learn to
budget on roughly $2,000 a month, then you’ll do much better when you’re
further along in your career.
Today’s budgeting apps are a far cry from your parent’s attempts to balance their chequebooks. Personal finance apps like You Need a Budget (YNAB) and Mint sync with your bank account to offer real-time updates, so you don’t need to wonder where all your money went at the end of the month. The budgeting tools available allow you to customize them to your needs both now and as they change later.
These apps can help you better understand the
primary concepts of money (i.e., how much things cost versus what you have) to
help you avoid high-interest revolving debt and set up an emergency fund.
Thinking About Financial Planning Now
You just started working, so why worry about
retirement? The first reason is that when you’re young, you have time on your
side. Even if you are still 20 years away from peak earnings, every dollar you
put away now benefits from compounded interest.
Get the job started with basic estate planning. You may not have much
in terms of assets now, but even setting up documents like a Durable Power of
Attorney and an Advanced Care Directive are smart things to do once you turn 18
and your parents can no longer make decisions on your behalf.
The best part is that beyond basic estate planning documents, the world of financial planning is much more accessible for you than it ever was for your parents. The world of fintech has not only opened up opportunities for virtual currency, but it also offers opportunities like robo-trading, which allows you to grow your wealth with tools like Roth IRAs or money market accounts automatically each week without hiring a financial advisor. For example, Acorns will make regular withdrawals from your checking account and invest them in the stock market according to your preferences. You can even use the roundups feature to ‘round-up’ each purchase to the next dollar and invest your spare change — or bury acorns for the future if you will.
All of these tools make saving painless, even
when you’re not proactively saving for retirement yet.
and Tax Credits to Fund Your Purchases
Your parents got an education, their first
house, and their first kid on their starter salary. You won’t. It’s not fair,
but you can still some of those things if you get creative.
Investing in green legacy purchases, like
electric cars or renewable energy projects for a home, allows you to enjoy some
great tax credits and grants to help pay off some of
those purchases. For example, did you know that if you buy a hybrid or electric
vehicle, then you can apply for the Alternative
Motor Vehicle Credit or the Qualified
Plug-in Electric Drive Motor Vehicle Tax credit? These credits mean
that you can invest in a vehicle that’s good for the future of the planet and
get a generous tax credit to help you pay for the car.
Unlike previous generations, today’s
21-year-old can’t buy a house, car, and college education on a middle-class
salary. These harsh realities mean that you need to be smarter with your money
than your parents were. Fortunately, you have help.
The world of fintech is making it easier for
people of all ages, educational backgrounds, and incomes to access the tools
they need to make informed decisions about their finances. From budgeting apps
to robo investors to grants available for those
willing to ‘go green,’ there are options out there to make your financial life
simpler in at least one way.
You can’t do much about the price of living or the cost of education, but you can have more information than before to make the best decisions possible. And that’s more valuable than you think.