Setting financial goals in your 20s can be an intimidating prospect. After all, it’s a time of life when you may be starting out in your career, or still in school, and when you’re just beginning to figure out how to manage your money. But taking the time to plan ahead now will pay off in the long run. Not only can setting financial goals help you build a strong financial foundation, it can also help you achieve your larger life goals. Whether you’re looking to pay off student debt, save for a house, or simply build an emergency fund, understanding how to set financial goals in your 20s is an important step towards financial success.
Why setting financial goals in your 20s is important
As you make your way through your 20s, life can start to feel like a balancing act. You might be juggling a full-time job, a side hustle, and school, all while trying to make time for friends and family. Figuring out how to fit saving for retirement into all of that can seem like an impossible task. But making time to set financial goals in your 20s can help you get a strong financial foundation, and set yourself up for financial success later in life. Setting financial goals will help you take an honest look at your finances, identify areas where you can improve, and come up with a plan to get there. And it doesn’t have to be overwhelming. There are lots of ways to break down your larger financial goals into smaller, bite-sized pieces, that are easier to digest.
Setting short-term goals
Short-term financial goals are those that you plan to achieve within one year. This might include saving for a trip, making a large purchase, or paying off an unexpected bill. Whatever your short-term financial goal is, setting a deadline for it can help you stay motivated, and hold yourself accountable to achieving it. Long-term financial goals, on the other hand, are those that take one to five years to achieve. This might include saving for a down payment on a house, or paying off student debt. Whatever your long-term financial goal is, setting a deadline for it can help you stay motivated, and hold yourself accountable to achieving it.
Setting long-term goals
Short-term financial goals are helpful for things you need to achieve within the next year, but long-term financial goals are helpful for setting your longer-term financial vision. This is the 10,000-foot view of how you want to handle your finances, and can include things like saving for retirement, or paying off debt. Long-term goals can help keep you motivated, and remind you why you’re working towards certain things. They can also help you stay on track by making sure you prioritize the things that are most important to you. Once you’ve identified your long-term financial goals, it’s important to break them down into smaller, more manageable pieces.
Establishing a budget
One of the first things you should do when setting financial goals in your 20s is to establish a budget. Budgeting can help you gain a better understanding of your spending habits, prioritize your financial goals, and identify areas where you can save more. There are lots of different ways to budget, and one that works best for you will depend on your income, current financial situation, and the goals you’re trying to achieve. Ideally, you should create a budget before setting financial goals, but if you haven’t done so yet, don’t worry. Budgeting isn’t a one-time thing you do once and forget about. Instead, it’s something you should continue doing throughout your entire life.
Paying off debt
If you have any lingering debt, such as student loans or credit card debt, paying it off should be one of your top financial goals. It might seem counterintuitive to put yourself further into debt in order to get out of debt, but it’s important to think of paying off debt as an investment in yourself. Debt can have serious long-term financial consequences, like impacting your credit score, and making it more difficult to buy a house one day. Even small amounts of debt can add up over time and become incredibly stressful, so it’s important to get it paid off as soon as possible. There are lots of different ways you can go about paying off debt, but the most important thing is that you do something. As long as you tackle your debt, you’re making progress towards getting rid of it.
Creating an emergency fund
An emergency fund is an account that you put money into in order to cover unexpected expenses, such as car repairs, medical bills, or a flight home if you lose your job while working abroad. Many financial experts recommend saving between three and six months of your total monthly expenses, which can be difficult to accomplish when you’re in the process of paying off debt, or saving for retirement. While your other financial goals may take priority, it’s important to save for an emergency fund, as well. Even small amounts of unexpected debt can become incredibly stressful, and having an emergency fund can help alleviate some of that pressure. While it’s important to save for an emergency fund, it’s also important to keep the money separate from your other funds. This will help you avoid dipping into your emergency fund for non-emergencies.
Investing in retirement
Once you’ve set short-term and long-term financial goals, and paid off any debt, you can start to think about retirement. Most financial experts agree that you should start saving for retirement as early as possible, and one way to do that is through an employer-sponsored retirement plan, such as a 401(k). If you don’t currently have access to a 401(k) at work, or don’t earn enough to contribute to one, there are other ways to get started saving for retirement, even if you’re in your 20s. You can open an IRA, or start a savings account, and begin contributing to it. While it may take a while to save up a sizable amount of money, it’s never too early to start.
Saving for a house
If you’ve always dreamed of owning a home, now is the time to start saving towards that goal. There are lots of different ways to save for a down payment, including contributing to a retirement fund and/or an emergency fund. Another way to save for a down payment is to get a part-time job, or find ways to make money from home. You may not be able to save a large amount of money in a single year, but with consistent effort, you can get there eventually. It’s important to keep in mind that saving for a down payment may take a while, so it’s important to start saving as soon as possible.
Other financial goals
There are lots of other financial goals you can set for yourself in your 20s. You may want to think about investing in your health by setting up a Health Savings Account (HSA), or finding ways to reduce your monthly expenses through things like cutting your cable bill or changing your cell phone plan. Whatever financial goals you set for yourself, remember that it’s important to stay consistent. It may be difficult to see immediate results, but with time, they will add up, and help you get closer to your financial goals.
Tips for reaching your financial goals
Be honest with yourself when setting financial goals in your 20s. It can be easy to make excuses and avoid honest self-reflection when it comes to your finances, especially if you don’t like what you see. But it’s important to be honest with yourself so you know where you can improve, and what financial goals you need to set for yourself. It can be easy to make excuses and avoid honest self-reflection when it comes to your finances, especially if you don’t like what you see. But it’s important to be honest with yourself so you know where you can improve, and what financial goals you need to set for yourself. Break down your larger financial goals into smaller, more manageable pieces. One of the most challenging things about setting financial goals is that they are a long-term process.