You’re in your 20s and hustling to make ends meet is second nature to you. And you’re young, so why bother putting any of that money aside for a rainy day, right? Wrong. Now is the perfect time to start building your financial future, and you don’t need much money to do so. The money moves you make at this stage could easily impact the rest of your life, so it’s important to make the best possible choices. Here are seven financial steps to take in your 20s that will safeguard your future.
1. Give investing a try
Many people make the mistake of believing that you need a huge amount of money before you start even considering investing, but this isn’t necessarily true. While you obviously require some free money to make any kind of worthwhile investment, it may be less than you think.
You can also start small and get in some solid practice by using an app that invests your spare change for you, like Acorns, or a micro-investing app like Robinhood. (See also: How to Start Investing With Just $100)
2. Understand the difference between good and bad debt
Many people believe that a good financial aim should be to live a debt-free life. While the principle behind it is sound, the reality is a lot different, and in fact, some debt can actually be good for your finances.
Debt that helps to generate a greater return than it costs is generally considered a good debt, and can be essential for building your finances. For example, student loans that will increase your earnings without putting you in the hole for several decades after you graduate is considered good debt. Carrying credit card debt once you’ve built a decent credit history is considered bad debt. Understanding the difference between what is harmful to your finances and what is beneficial will be a lesson that will help you for the rest of your life. (See also: 8 Signs You’ve Crossed From “Healthy” Debt to “Problem” Debt)
3. Start collecting credit card points
Using credit cards to accrue rewards is a great way to make the most out of your money and get things for free, simply by doing your normal spending on the right credit cards. If you get into the habit of doing this in your 20s, the more rewards you’ll be able to accrue.
Using your credit cards wisely will allow you to earn travel perks like free flights and hotel stays, cash back, and gift cards. You can score yourself hundreds of dollars worth of bonuses per year while building your credit score at the same time.
However, in order to qualify for a credit card that offers these kinds of rewards, your credit score and history must be in good standing. And make sure you’re in a position to pay your credit card balances in full each month before applying for a travel credit card, as the interest rates are generally higher than with regular cards.
4. Begin saving for retirement
Even though, as a 20-something, you might think your retirement is a lifetime away, it’s never too early to begin preparing for it. It’s easy to put off saving for retirement in the hope that you’ll earn more later and can start saving then. It’s even easier just to bury your head in the sand and try and forget about it entirely.
Even if you can only contribute a little, it’s best to get into the habit of contributing regularly as early as possible. You’ll be surprised at how much it grows over time, and you’ll thank your younger self in later years for doing it. (See also: 4 Retirement Planning Moves Every 20-Something Must Make)
5. Create an emergency fund
Bad things happen, often at the most unexpected times. Your car might need urgent repairs, you may suffer a sudden loss of income, or you could rack up an unforeseen medical bill. Without the funds in place to pay for those times when life throws you a curveball, you could find yourself in a tough situation.
Starting an emergency fund should be an absolute priority in your 20s and will enable you to take sideswipes like this in stride rather than knocking you completely off-course. Figure out how much you want in your emergency fund and start working toward it before disaster strikes, even if you can only set aside $20–$40 each month. Your emergency fund will grow if you keep at it, and you’ll end up with a decent chunk of change to access when you need it most. (See also: 7 Easy Ways to Build an Emergency Fund From $0)
6. Demolish your debts
For many people, debt is an inescapable reality of their 20s, and 30s — particularly for those struggling to pay student loans. Data released by the U.S. Department of Education suggests that up to 40 percent of borrowers might default on their student loans by 2023, with average debts continuing to rise.
It’s not just student loans, either. Many people in their 20s accumulate large credit card balances in order to make ends meet while trying to find steady work. If you have debt in your 20s that you’re not trying to pay off as quickly as possible, it could become a lifelong burden. Now is the time to start sending any extra money you have toward paying off those balances. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)
7. Create a budget
Many people spend their 20s in a state of carefree bliss, but this is the decade to start planning financially for the rest of your life. It’s all too easy to get into bad financial habits and avoid looking at those monthly bank statements when they arrive in the mail. Don’t be this person. Face your fear and open those ominous envelopes. Look at where your money goes. Start tracking expenses, and then create a monthly budget that you can stick to.
It might seem impossible when your monthly income is pieced together with part-time work, internships, and other side hustles, but you can do it if you’re smart and creative with how you spend your money. (See also: How to Budget Consistently Without a Steady Paycheck)