Financial Focus In Your 20s – Part 4
There’s a lot to think about when it comes to creating a firm financial foundation, isn’t there? Don’t get overwhelmed. Each of these steps is pretty straightforward, but you need to make them all dovetail to really work. And the plan will only work if on a day-to-day basis you do the things to keep the plan on track.
7. Keep your monthly banking fees in check. Most people don't pay much attention to their bank costs. If you need $20 to pay the bar tab, you whip across the street to the machine and pull a $20. Did you see the $1.50 fee the machine just charged you? How about the $1.50 your own bank is going to charge for having used another bank’s machine? There ya go, you just paid $3 in fees – that’s a 15% fee -- on a $20 withdrawal because you’re not paying attention.
Quit using the banking machine like a wallet. With a little planning, and some self control, you should be able to make a withdrawal from the machine twice a month (or once a week at the most) to cover your cash needs all month. If you’re going to the machine more often than that, it’s probably because you’re working without a plan. And you know what they say: Fail to plan; plan to fail!
You can reduce your bank charges – or eliminate them completely – by shopping around. Some banks have no-fee accounts. Some have banking packages that significantly reduce how much you have to pay each month providing you follow the rules and stay within the transaction limits.
8. Start learning about investing. You may not be ready to leap into the world of investing just yet, but there’s no reason why you can’t start reading up and developing on understanding so that when you are ready you’re also informed.
Stocks and bonds have historically tended to earn higher rates of return for investors over long periods of time. The downside is that they're riskier than things like GICs or term deposits. Only you can decide how much risk you're willing to take for the chance to earn higher returns over time.
When you do decide to launch into the market, rather than trying to pick the specific stock or bond (or pay the fees associated with many mutual funds), look at buying the index instead. You can get the diversification you’re looking for along with the exposure to the types of stocks or bonds you’re most interested in. If anything in the previous sentence sounded like gobbledegook to you, it’s because you still have to learn the basics. Start reading!
9. Think about owning. At some point in your twenties may start to feel that you should buy a home. But deciding what you want, how much you can afford, and how you’ll finance this big step takes a lot of planning. There’s far more to it than simply comparing your monthly rent with the monthly mortgage payments you'd make as a home owner.
Lots of people who think they are ready to buy a home have difficulty coming up with a downpayment. Hey, if you can’t get focused enough to save a downpayment it may be that you aren’t ready for home ownership. Or maybe you just don’t make enough money yet. Or you’ve got too many expenses, including a whopping amount of consumer debt. Jumping into home ownership without a sound financial foundation means you’re likely to feel strapped and become resentful because you no long have any money for fun. Look before you leap.
10. Get smart about taxes. Nobody likes paying taxes and the best way to make sure you’re paying the least amount necessary is to become familiar with the rules and regs. What tax deductions or credits are you eligible for? What expenses can you claim against your taxes? What other ways can you reduce your taxable income? Get yourself a copy of the tax guide for the current year. Stick it in the bathroom and every time you sit for a few minutes, read a paragraph or two. Keep a pen handy to underline what may pertain to you. In just a few weeks you’ll have a good sense of what’s what. And it will have taken no more time than taking a good… well, you get my drift.
Okay, there are the ten steps to getting your financial foundation on track in your twenties. Do these things and you’ll be well on your way to coping with what life throws at you in your thirties and beyond.