What if someone told you that you don’t have to be bad with money at 21? I certainly came from some financial privilege, but not a lot. When I moved to Washington, D.C. for college I had to figure out how to make it work. I made a lot of mistakes, but I’ve definitely learned along the way. Here are 5 smart money moves I made at 21.
1. I learned the ins-and-outs of my credit report
Student loans are so easy to get and when you’re 18 or 19 years old they can feel almost arbitrary. You understand that they exist but you really haven’t worried about making a plan to pay them off yet and may not even know the exact number. In college, I grew an interest in personal finance and the first piece of advice I always give people is to check your credit report.
Seriously, there are tons of free sites that will show you your report, I personally use CreditKarma. This gave me close to a full picture of my financial health. I learned that my student loan balance is in the six figures and figured out how much else I owe on my car, credit cards, etc.
Did you know, 1 in 5 Americans have an error on their credit report? You will never know unless you check your credit report. If you spot an error, report it to the credit bureau immediately to get it off your report!
2. I built an emergency fund
Most financial experts will tell you to build a buffer of at least 2-3 months before you start aggressively paying down debts. However, I was struggling to hit monthly payments and also have a social life and put this on the backburner. Then I needed new tires for my car and it started a ripple effect on my credit cards.
After this, my tax refund immediately went to building out a buffer. Right now I’m sitting at a 2-month buffer that I reserve for emergencies. This gives me the peace of mind I need to start aggressively paying down my debts and knowing that a financial hiccup won’t undo months of progress.
How do you know how much you need in an emergency fund? That brings me to my next piece of advice:
3. I built a real budget based on my priorities and no one else’s
There are a million budgeting rules out there, spending 50% on necessary expenses, save 20%, etc. My priorities were simple:
- Pay the bills on time each month
- Enjoy a little bit of a social life
- Aggressively pay down debts
This is simple enough but writing it out and budgeting with the money I had helped a lot. The tool that I use to run my budget is You Need A Budget (YNAB). YNAB quite literally changed my life and the way I look at money. I’m going to post a full review soon, but it helped me to list out my true expenses that I have to pay each month and showed me down to the penny how much money I had to put toward my debts and fun.
If you build a budget based on someone else’s priorities, it probably won’t stick. It’s easier to overspend if you don’t have some personal reason to stick to your budget. So, figure out your “why” and stick to it. Maybe you’re like me and want to get out of debt as fast as possible, or maybe you’re also like me and want to go to Europe next year.
Build a budget, stick to it.
4. I opened my 401(k) and accepted matching funds from my employer
I had no idea what a 401(k) even was a year ago. I also didn’t know why it was so important for me to start saving for retirement when I have so much debt and I’m only 21. But, a 401(k) with an employer match is literally free money. I opened up an account on my 21st birthday (you’re usually not eligible until you’re 21), picked some funds, set my allocation levels, and just let the market decide the rest.
My former employer would match up to 4% of your salary if you contributed 5%. That means 9% of my salary was invested in my retirement account without me having to do too much.
This also helped me to lower my tax liabilities, put some saving on autopilot, and expand my nest-egg. It’s never recommended to withdraw from your 401(k) early, as doing so will result in severe tax penalties. That said, knowing it is there does offer peace of mind in case of a real emergency.
I’m fortunate enough to have not had to touch it and it has been growing for the better part of the last year.
5. I started making more money
This one goes without saying. When I began making my budget and adjusting to life after undergrad, I quickly realized I simply wasn’t making enough money to reach my financial goals. I was able to pay my bills, sure. But I really wasn’t able to do much else. The job I had through college (that I loved) wasn’t going to be my forever job and I started looking elsewhere.
I used most evenings and nights looking for other jobs, creating a meticulous spreadsheet to track progress, and ultimately fell into another job that I loved by accident.
The result? I realized I was being severely underpaid for my skill set and saw a 30% raise almost overnight.
This isn’t possible for everyone, but there are several ways that you can make some extra money on the side while still working your full-time job.
Do some research on ways to earn a little bit of extra job from the things you’re passionate about and you’ll be on your way. If you’re doing the rest of the things here, you’ve made budget sacrifices, but you still feel like you’re not making enough progress, it might just be time to make more money.
A healthy chunk of Americans have a side-hustle already. It’s growing in popularity and it certainly isn’t taboo. If you pick up a side hustle doing something that is similar to your full-time job, triple check that you aren’t violating any non-competes or contracts you may have signed.
What are some of the best financial moves you’ve made in your twenties? I want to know!
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