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Your 20s can be both exciting and stressful. On the one hand, you’re probably expanding your social circle, building your career, and taking some fun risks along the way. On the flip side, you’re probably figuring out how to navigate office politics and stretch a small paycheck to cover all of your financial needs. Most likely, you are wondering what you need to do right now to financially prepare for the future.
And if you’re a woman, it’s even more important to focus on your long-term goals.
There are many reasons why women should take an active role in their finances and in building their wealth. On the one hand, women live longer on average than men and will therefore need more money saved for retirement. Yet a September 2021 report from the U.S. Bureau of Labor Statistics points out that women who work full-time still earn 82% of what men who also work full-time – in other words, earn. earn 82 cents for every dollar a man earns. makes; it’s even lower for women of color.
It is important that young women begin to take steps to make their money work harder for them. I spoke to Jill Gianola and Margaret Price, co-authors of the book “Single Women and Money: How to Live Well on Your Income” for advice on important financial milestones for women in their twenties.
“Your 20s are an exciting time because you are just starting your career, but you also have to deal with loans and other debts and figure out how to save when your paycheck isn’t as big as you thought,” says Gianola. .
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1. Take advantage of the advantages offered by your employer
You often feel like you have so many financial obligations and goals to meet at the same time, especially if you’re struggling to cover all of your expenses. A good way to alleviate some of this pressure is to look at the benefits offered by your employer.
Health insurance can be expensive if you sign up for a plan yourself – on average, health insurance costs $ 456 per month for individuals and $ 1,152 per month for a family. However, you can reduce this expense by purchasing health insurance offered by your employer. On average, employees will pay around $ 105 per month for health insurance when they sign up through their employer – and the money automatically comes out of your paycheck, so you’re less likely to miss it. .
Another common benefit offered by employers is a 401 (k) or 403 (b) plan. With an employer-sponsored retirement plan, you can put a percentage of your pre-tax salary into a retirement account and the money is invested in assets such as target date funds and mutual funds.
Some employers will automatically enroll full-time employees in 401 (k) plans. But if you’re not sure yours is, you can always check with HR. You should also make sure that you are contributing enough from your paycheck to receive the matching from your employer. This way, your employer also contributes to your retirement savings, which can allow you to grow your account much faster. If you don’t meet the match, you’re essentially leaving free money on the table.
Many companies also offer various reimbursement programs for their employees, including discounts on services such as fitness centers, classes, and financial planning. Not all employers offer such perks, but it doesn’t hurt to ask – and if you find out yours does, it could save you money every month.
2. Build up your emergency fund
Almost all financial experts will recommend that young people use part of their salary to start build an emergency fund, and Price and Gianola agree. An emergency fund gives you a reserve of money that you can draw on to cover unforeseen expenses.
While some expenses may end up costing more than you can cover with your savings, the money you save should still keep you from taking on too much debt.
It’s a good idea to keep your emergency fund in a high yield savings account that’s separate from the rest of your checks and savings. A high yield savings account, like the Marcus by Goldman Sachs Online Savings Account or Ally Online Savings Account, allows you to earn interest on your balance so you can grow your money a bit. faster.
3. Prioritize the necessities but make room for the things you love.
There is a lot of pressure to save and invest your money while covering all of your daily expenses like rent and food. Managing your money can seem overwhelming at times. In order to avoid this fatigue, it is also important to use your money for some of the things that you love.
“One of the main things we talk about in our book is understanding your income and expenses, and how to prioritize necessities, but also free up money for things that bring you joy,” says Gianola. “Otherwise, it’s like going on a diet and saying you’ll never eat another dessert again – you’ll never stick to it.”
You can start by looking at your spending (using a budgeting app like Mint or Personal Capital) and identifying anything that you are currently spending money on but don’t use or enjoy, like memberships you forgot or a gym membership you don’t have. t use. This way, you can maximize the money you can comfortably spend on the items you love.
4. Learn How To Use Tax Credits To Cut Your Costs
“One interesting thing we found is that many women in their twenties don’t know how to use tax credits to reduce their expenses, ”explains Price. “There is a range of tax credits and deductions like the Lifetime Tax Credit, the Child Tax Credit and an Earned Income Tax Credit for low-income people without children.
Tax credits reduce the amount of money you owe. For example, if you owe $ 500 in taxes, but you receive a tax credit of $ 500, your tax payable drops to $ 0. Or, let’s say you owe $ 500 in taxes but receive a $ 1,000 tax credit – you actually end up with a $ 500 tax refund. Then you can use that repayment money to boost your savings account or invest more in a retirement account.
There are many types of tax credits you can claim. For example, California residents can claim a tenant tax credit if they pay rent and have income below a certain level. H&R Block has a list of other tax credits available for young people, such as an education credit if you’re a student paying tuition and a charitable donation credit. Tax credits can usually be claimed while you are filing your tax return.
5. Pay off your debt and invest for your retirement at the same time
There is often a debate about whether to prioritize pay off debt or invest for the future first, but Gianola recommends doing both at the same time with whatever amount you can afford.
“I like the idea of progressing on more than one goal at a time,” she says. “The dollars you invest in a Roth IRA or 401 (k) today are the most valuable dollars in your retirement portfolio because they will have the most time to grow. So start saving for retirement as soon as you get a job, even if it’s just $ 10 or $ 15 a month. But at the same time, have a plan to pay off your debt. “
Price also suggested tackling high interest debt like credit card debt first, because the more you keep on that debt, the more interest charges you’ll end up paying. Eliminating high interest debt can free up extra money that you can spend on other debt or invest more.
At the end of the line
Your 20s can be both exciting and intimidating, especially when it comes to balancing your financial obligations with the rest of your lifestyle needs and wants. But if you had to focus on a few financial steps you should take right now, build your emergency fund first, take advantage of your employer’s benefits, use the tax credits available to you, spend money. for things you love and make a plan to pay off debt and save for retirement.
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Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.