Money Advice You Should Know In Your Early 20’s
*This is a collaborative post on money advice you should know in your early 20’s
I’ve not always been good with money. When I was in my late teens/ early 20’s I very much lived pay check to pay check and would spend everything that I earned. I struggled to get financial advice, and didn’t really understand the impact of some of my spending and habits.
Here is some money advice you should know in your early 20’s.
Put money into your pension now
Retiring probably feels like a lifetime away right now, but it’s the perfect time to be thinking about it. We’re all going to need some extra money when we retire as state pensions aren’t all that high.
Thanks to the power of compound interest, the longer you save, the more you’ll be left with. If you save a total of £20,000 over 40 years, you’ll be left with a much bigger sum than if you saved £20,000 over 10 years. This is because each year you earn interest on what you have saved, and the next year you earn more etc. So the longer your money is sitting in a savings account the more interest you’ll earn.
Check out this retirement calculator to see how much less you need to save just by starting earlier.
Money advice- get a credit card
This may sound controversial to some people, but it’s important to build your credit rating in your early 20’s. If you don’t have a credit card (or any other form of credit), and then you go to apply for a mortgage lenders won’t know if you’re a safe bet.
Getting a credit card and using it responsibly is an important step to build your rating and show that you pay back everything you borrow. I got a credit card pretty early on and only put larger purchases on there that I could then clear straight off afterwards. And this was a saving grace when I applied for my mortgage as I may not have got the rate I did without it.
The key to this is being responsible and not falling into bad habits. Only use it if you can afford to pay it all back. You can use this calculator to work out how your payments.
An emergency fund is a really good idea
When you’re younger and more careful planning for emergencies may be far from your mind but it’s so important. Getting made redundant from work or having a slower freelance period aren’t that uncommon. Putting aside some money to cover you in case of emergencies can stop you from getting into debt, or being in a difficult situation if the worst happens.
Start by saving three months of expenses and raise it to six months if you can afford to do so.
Money advice- you don’t need to buy a new car
Having a shiny brand new car is a lovely feeling, and a lot of people see them as a status symbol, but it’s not always worth it. New cars drop in value really quickly, around 15% as soon as you leave the dealership. And another 15% after the first year. So that’s a lot of money to waste when you’ve probably got other financial priorities to be thinking about.
You can get a good quality second-hand car which may only be a year or two old without the premium of brand new.
Keep an eye on your credit score
It’s so important to keep track of your credit score, as one issue can haunt you for years. You can check all of your credit, addresses’, financial connections and so much more. And if you notice something wrong, or something you can improve you’ve got time to sort it. I had no idea what my credit score was before I got my first mortgage, but now I check mine every month.
There are three UK credit reference agencies: Equifax, Experian, and Transunion. You can use Clearscore to see your Equifax score. Experian for your Experian score. And Credit Karma for your Transunion score. And checking your credit score every month won’t impact you negatively, or damage your score.
What money advice do you wish you’d known earlier?
18 responses to “Money Advice You Should Know In Your Early 20’s”
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These advices are very important, very very important!!! Investing in pension at an early age was one of the best decisions I’ve done!!! I can’t recommend this enought….
It’s SO important to start putting money into your retirement early on. The more you have the more it will grow.
I wish I’d thought more about it when I was younger x
These are all great tips. Your 20s are the perfect time to start planning for your later life.
These are such important money advice. I wish I had these when I was in 20s…it is so important to maintain credit score and not overspend. I would also add getting a Life Insurance in 20s as the premium would be low.
I totally agree with this, I always remember my Dad telling me to invest in my pension around 20 and I thought I had years to think about it
I wish my parents had spoken to me more about it when I was getting my first job x
Not purchasing a new car but instead purchasing a car that was decent but used (IE not needing a ton of repairs) is one of the best things I did in my 20s! Thank you for this advise.
Same here, even now I don’t think I’d be buying a new car unless I came into a lot of money x
Great tips…important steps and precautions to be aware of early on. It pays off later. Thanks for sharing!
Awesome advice! My kids are still a pre-teen/teen but I am always explaining to them how taxes work, how to manage bills while still putting away money in the savings, credit, etc. so they are more prepared when they become adults and move out than I was.
So much I wish we were taught in school around taxes/ bills etc x
Your advice on money management in your early 20s is spot on! It’s never too early to start thinking about your financial future, especially when it comes to saving for retirement. Compound interest is indeed a powerful tool, and your insight on its impact is valuable. Learning from past experiences and sharing this advice is a great way to help others make smart financial choices.
This is great advice for people in their early twenties. I could have benefitted from an emergency fund back in my twenties.
Same here, wish I’d started earlier x
I am still working on some of these things. It can be tough to figure out which are the best financial moves!
This is all very solid advice. I definitely wish I had known and done more of it when I was younger. Thanks for sharing,
That’s really a great advice for people in their twenties. Wish I knew all this in my twenties. Saving money and not over spending is also a good thing.