Work & Money

Money in your 20s: Tips for tackling debt and setting up for success

Live like a student a little longer, but also, invest in your future self.
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No matter how long you've been working by the time you hit your 20s, this is still likely the first time you've had to deal seriously with your personal finances. Sure, you might have had a part-time job before now, but before now, you might not have had to depend on your income for survival: shelter, food, taxes… etc. In your 20s, when you start making a regular paycheck and start learning to manage your income and those daily expenses, you'll most likely also need to learn about managing your debt — both what you've incurred to date (school or car loans for instance) and how to avoid accruing more debt. This is one of the most important decades when it comes to building a healthy financial future, but many 20+-year-olds fail to capitalize on this time. We're here with some tips on what you should be doing with and about your money in that decade of your life, to set yourself up for success.

Don't just deal with it; tackle your student debt

If you're just graduated and landed your first full time job, your priority should be to pay down your student debt as fast as possible. The best way to do that? Continue living like a student for the few years after graduation. Keeping your costs low will allow you to divert as much of your income toward your debt as you can. Consider living with a roommate, trying your best to find entertainment for free and, even if you do travel extensively, try not to do it expensively! This can be a difficult sell, when you feel you're "done!" with the student life, and want to start enjoying your money. This exercise really is a case of "short term pain for long term gain" and it is so important because hanging on to student debt too long affects your ability to build wealth.

Make future plans — long-term ones

Your 20s is good time to map out where you want to be in each decade of your life. For example, do you want to be homeowner by 30? That's something to plan for right away. Maybe you want to have a certain amount saved in your retirement savings plan by the time you're 40. Also think realistically about how you see your income rising over the next 10-20 years. Once you put these ideas into a financial forecast, it's easier to make path out how to get to your goals concretely.  If you're 22 and you plan to buy a house before you turn 30, you can start saving for a down payment now in order to actually achieve that dream. Take it a step future by starting to research areas you want to live and how much a house there costs.

Start your regular savings commitment

Once you student loans are paid off, your priority should be to start making regular monthly contributions into your retirement savings account — it is not too early to start. You can open an RRSP or TFSA, or even simply save your money in a high-interest account. The most important thing is to start saving regularly.  During this decade, your ability to save is likely much greater than it will be in later years. Even though you might be making more in your 30s, 40s and 50s, you're less burdened now with the expenses that will come down the road from your mortgage, raising kids, caring for parents, to name a few. As well, you have time on your side so your money will grow so much more before retirement, than if you saved that same money 10 years down the road.

Invest in yourself

Spend some time making your future self better. This mean something different for everyone. It could mean more higher education, or a learning an instrument. It can mean traveling to places you've longed to see but were too busy and broke to visit when you were student. Think about working in that country! Maybe you will learn a new culture and language. All of these experiences will pay dividends well into the future. This could be the one time in your life where you can enrich yourself doing what you like. Life can bring circumstances (kids, spouses, health) that have to be considered before doing whatever you want later on.

The financial foundation you set in your 20s can dictate your relationship with money for the rest of your life. So have fun but remember to think long term and invest in your future life too.