When most of our parents were in their 20s, they were having us, buying houses, and working on their 401ks. Flash-forward a generation and now the 20s are considered a development phase. Even if you are figuring out what you're doing with your life, avoiding financial pitfalls can get you where you want to be much faster.
From managing your spending to paying all of your bills, here are the eight financial habits you need to form in your 20s.
1. Swiping your credit card like there is no tomorrow.
Plastic feels good in your hand and since you don't physically feel the money coming out of your wallet, it is easy to spend money fast. Avoid sinking into a debt hole by paying off your credit card purchases as soon as possible. The really expensive night out or the beautiful Italian leather shoes? Avoid using your card for impulse purchases and if you don't have the cash of fun purchases, then don't buy it just yet.
2. Defaulting on your student loans.
Hopefully, you're not drowning in college debt. Easiest way to mange your loans is by paying it regularly and not being late. You don't want your interest to snowball and interest fees add up quickly. If you're having a hard time paying the loans, look into refinancing your loans or a different payment plan.
3. Not paying your bills on time.
Pay your bills on time. There may be months were it's not going to happen but bills and necessary expenses come first. Then everything else.
4. Forgetting to create a retirement fund.
Oh, I'm not retiring for another forty years. "I'll worry about it later" is an easy attitude to have in your 20s, but preparing now can create an easy transition in the future.
5. Calling the parents for money.
Everyone needs a little help sometimes and it can be hard to make ends meet when you're on an entry-level salary. However, running to your parents every time you need help can create a bad habit. Figure out how to solve your problems so you can be equipped the bigger problems.
6. Not understanding the concept of a budget.
Uncontrolled spending money is one of the biggest problems when it comes to financial issues. Get a manageable budget for each month. Your budget can grew as your debt decreases and income increases.
7. Financial plan? What is that?
Once you get a budget down, you need a financial plan that includes long term saving, spending and investment goals. Put a little away every month or every paycheck. It's much easier to create a savings fund little by little that all at once in your 30s
8. Skipping insurance, since you're young and think you're invincible.
If you don't get sick as often, it's easy to skip insurance. But accidents happen and accidents can be expensive. Having insurance can help avoid significant debt. That's what insurance is for. While you're at it, get renter's insurance. It will cover fires, stolen items and cover replacement costs for things.
Whether you are looking for a new job or trying to grow in your current one, getting a certification can be a great way to improve your skills.
Anyone can put that they are proficient in a computer program on their resume but having a certificate can help you stand out amongst the competition and give credence to the strength of your skills.
But what's the best way to invest in yourself without breaking the bank? Some certification programs can cost hundreds if not thousands of dollars. We are going to walk through six of the best certifications you can get for $100 or less.
Who is it best for: Those who work with analyzing and presenting data.
Cost: $100 for Tableau Desktop Specialist; additional certifications are available for a larger fee.
More companies than ever see themselves as data companies. Being able to understand data and use it to guide decisions at your company is often critical to taking on a leadership role. Not to mention, being able to present the data in a clean, attractive, and compelling way can help get buy-in from others in your organization or clients. That's why Tableau is a great tool to have in your toolbox.
Tableau allows you to create interactive visual analytics dashboards. In layman's terms, you can take data; create graphs, maps, or charts; and then allow end-users to interact with these graphics to better understand the information. It's a fantastic tool allowing non-technical users to gain insights for data-driven decision-making.
Tableau Desktop Specialist certification starts at $100 and has no expiration date. There are many videos on Tableau's site to prepare for your exam as well as Tableau Starter Kits allowing you to play around and learn the different capabilities of the program. Tableau offers a 14-day free trial as well as free license for one year for students.
Additional certifications after Desktop Specialist are Desktop Associate and Desktop Professional. Those working with a Tableau server may also be interested in a separate certification as a Server Associate or Server Professional.
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When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.