What are some financially smart moves?

Select offers six smart money moves you should make in your 20s to set yourself up for future financial success. 6 money moves to make in your 20s. ... Create a budget and stick to it. ... Build a good credit score. ... Set up an emergency fund. ... Start saving for retirement. ... Pay off debt. ... Develop good money habits.

cnbc.com - 6 smart money moves to make in your 20s that can help you save money

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Making smart financial choices in your 20s can help set you up for long-term success. That includes creating a plan to pay off student loans, avoiding credit card debt, building an emergency fund and working toward hitting bigger goals, like having enough money for a down payment on a house. Taking control of your finances at a young age — even if you feel cash-strapped in an entry-level job — will make it easier for you to achieve your goals in your 30s and beyond. Select offers six smart money moves you should make in your 20s to set yourself up for future financial success.

6 money moves to make in your 20s

Create a budget and stick to it Build a good credit score Set up an emergency fund Start saving for retirement Pay off debt Develop good money habits

1. Create a budget and stick to it

Creating a budget is an important financial step that can help you get your finances in order and track how much money comes in and out of your bank account every month. While it may seem like a lot of work to create a budget, there are numerous online resources and apps that can help you. Plus, once you have one, the majority of the work is done, and you can tweak it as your spending habits or income change. After you create a budget, it's important to stick to it. Regularly check-in with your budgeting goals so you don't spend more than you can afford to repay. And if you share expenses with someone else, make sure you both have access to the budget and hold each other accountable.

2. Build a good credit score

Establishing a good credit score is key to qualifying for the best financial products, like credit cards and loans. Plus, the higher your credit score, the better terms you'll receive, which can save you thousands of dollars in interest in the long-run (we always recommend you pay your balance on time and in full each month). One of the catches of building credit is you need to have some credit history in order to qualify for a credit card, but it's hard to qualify for a card without any credit history. One option is to become an authorized user on a family member or friend's credit card. You could also consider applying for a secured card, which works the same as a regular credit card, but you're required to put down a deposit (typically $200). There are also a few options that can help you raise your credit score without a credit card, like *Experian Boost®. This is a free feature that lets you link positive payment history for monthly utility, phone and Netflix bills, potentially boosting your FICO® Score. Once you have a credit card, the easiest way to improve your credit score is to regularly use the card, be mindful to spend within your means, make sure you pay at least the minimum on time every month and pay in full whenever possible. Check out more tips to improve your credit score.

3. Set up an emergency fund

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One of the best steps you can take in your 20s is to establish an emergency fund to cover any unexpected expenses that may arise, such as medical bills or car repairs. The money in your emergency fund can help you avoid taking out a loan or carrying a balance on a credit card, which can save you money on interest charges. When you set up an emergency fund, consider keeping the money in a high-yield savings account, like Marcus by Goldman Sachs High Yield Online Savings or Ally Online Savings Account. These online accounts only allow you withdraw money up to six times a month without penalty, which might help reduce the temptation to withdraw money for non-emergencies. Experts generally recommend putting three to six months of expenses into an emergency fund, but amid the coronavirus pandemic and high unemployment rates, some financial experts are offering more realistic advice about how much people should try to save. Instead, you should focus on saving as much as you can afford, after covering necessary bills. It's OK to start with a smaller goal. Saving $20 a week (roughly $3 a day) adds up to $1,000 in a year, which is a good cushion to get you started.

4. Start saving for retirement

It's never too soon to start saving for retirement, and the earlier you start putting money toward your future, the more it can grow. When you get your first full-time job, your employer may offer a retirement account, such as 401(k), that you can open and deposit a percentage of every paycheck into each pay period. Many employers also match your contributions up to a certain percentage, which is a great way to maximize savings. As a general rule of thumb, opt to save at least a percentage that is equal to your employer's match. So if they match up to 6% of your contribution each paycheck, choose to transfer 6% or more to your 401(k) every pay period. While employer-sponsored retirement accounts are helpful, you don't have to wait until you have a full-time job to start saving for retirement. Roth IRAs are a great alternative to a 401(k), and you can set up recurring transfers from every paycheck so you never have a chance to miss the money.

5. Pay off debt

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If you have student loan or credit card debt, you should make paying it off a priority in your 20s. Owing money to a lender has the potential to hurt your credit by increasing your utilization rate (the percentage of credit you use), which can result in a lower credit score. Lenders may also consider you a high-risk borrower if you have a large amount of debt, which may reduce your chances of qualifying for other financial products. And beyond affecting your credit score and qualification chances, you'll wind up paying a lot of money in interest charges the longer you carry debt. Take the time to make a clear debt repayment plan and stick to it. After you create a budget, consider how much money you can put toward your debt every month. Some experts recommend that 20% of your take-home pay should be earmarked for debt repayment and savings. If you want to pay your debt down faster, you might divert more of your income toward that goal. You can also consider debt consolidation if you have balances spread across numerous cards. Debt consolidation can help you minimize the number of accounts you need to pay each month and sometimes offer lower interest charges than a credit card.

6. Develop good money habits

Bottom line

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

cnbc.com - 6 smart money moves to make in your 20s that can help you save money

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