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Your twenties can be equal parts exciting and stressful. On the one hand, you’re likely growing your social circle, building your career and taking fun risks along the way. On the other, you’re probably figuring out how navigate office politics and stretching a small paycheck to cover all your financial needs. Mostly likely, you’re wondering what you need to do right now to financially prepare for the future.
And if you’re a woman, it’s even more important to focus on your long-term goals.
There are many reasons why women need to take an active role in their finances and building wealth. For one, women on average live longer than men and will therefore need more money saved for retirement. Yet, a September 2021 report from the U.S. Bureau of Labor Statistics highlights that women who work full-time still earn 82% of what men who also work full-time earn — in other words, women earn 82 cents for every dollar that a man makes; it’s even lower for women of color.
It’s important for young women to begin taking steps to make their money work harder for them. I spoke to Jill Gianola and Margaret Price, co-authors of the book “Single Women and Money: How to Live Well on Your Income“ to get their tips on important financial steps women in their twenties should be making.
“Your twenties is an exciting time because you’re starting your career, but you’re also dealing with loans and other debt and figuring out how to save when your paycheck isn’t as large as you thought it would be,” Gianola says.
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1. Take advantage of benefits offered by your employer
It can often feel like you have so many financial obligations and goals to work toward all at once — especially if you struggle to cover all your expenses. One good way to alleviate some of that pressure is by looking at the benefits offered by your employer.
Health insurance can be costly if you sign up for a plan on your own — on average, health insurance costs $456 per month for individuals and $1,152 per month for a family. However, you can lower that expense by enrolling in health insurance offered by your employer. On average, employees will pay about $105 per month for health insurance when they enroll through their employer — and the money automatically comes out of your paycheck so you’re less likely to miss it.
Another common benefit offered by employers is a 401(k) plan or 403(b). With an employer-sponsored retirement plan, you can contribute a percentage of your pre-tax paycheck into a retirement account and the money is invested into assets like target date funds and mutual funds.
Some employers will automatically enroll full-time employees in 401(k) plans. But if you aren’t sure if yours does, you can always double check with HR. You should also be sure you’re contributing enough of your paycheck to receive your employer’s match. This way, your employer also contributes to your retirement savings, which can allow you to grow your account much faster. If you’re not meeting the match, you’re basically leaving free money on the table.
Many companies also offer different reimbursement programs for their employees, including discounts for services like fitness centers, coursework and financial planning. Not all employers offer such benefits, but it doesn’t hurt to ask — and if you find out that yours does, this could save you some money each month.
2. Build your emergency fund
Almost all financial experts will recommend young people use some of their paycheck to start building an emergency fund, and Price and Gianola agree. An emergency fund provides you with a cushion of money that you can draw from to cover unexpected expenses.
While some expenses may end up costing more than you can cover with your savings, the money you save should still allow you to avoid going too far into additional debt.
It’s a smart idea to keep your emergency fund in a high-yield savings account that’s separate from the rest of your checking and savings. A high-yield savings account — like the Marcus by Goldman Sachs Online Savings Account or the Ally Online Savings Account — allows you to earn interest on your balance so you can grow your money a little faster.
3. Prioritize necessities but make space for the things you enjoy
There’s a lot of pressure to save and invest your money while also covering all your day-to-day expenses like rent and food. Managing your money can sometimes feel exhausting. In order to avoid this fatigue, it’s also important to use your money for some of the things you love.
“One of the main things we talk about in our book is understanding your income and expenses, and how to prioritize necessities but also carve out some money for things that bring you joy,” Gianola says. “Otherwise, it’s like going on a diet and saying you’ll never eat another dessert again — you’ll never stick to it.”
You can start by taking a look at your expenses (using a budgeting app like Mint or Personal Capital) and identifying anything you’re currently spending money on but not actually using or enjoying — like subscriptions you forgot about or a gym membership you don’t use. This way, you can maximize the money you can comfortably spend on items you enjoy.
4. Learn how to use tax credits to cut your costs
“One interesting thing we found is that many women in their twenties don’t know how to use tax credits to cut their spending,” Price says. “There are a range of tax credits and deductions like the lifetime earning credit, the child tax credit and an earned income tax credit for childless people with modest income.”
Tax credits reduce the amount of money you’ll owe. For example, if you owe $500 in taxes, but you receive a $500 tax credit, your tax liability drops to $0. Or, let’s say you owe $500 in taxes but receive a $1,000 tax credit — you’ll actually end up with a $500 tax refund. Then you could use that refund money to pad your savings account or invest more in a retirement account.
There are many different types of tax credits you can claim. For example, California residents can claim a renter’s tax credit if they pay rent and have an income below a certain level. H&R Block has a list of some other tax credits available to young people, like an education credit if you’re a student paying tuition and a credit for charitable donations. Tax credits can generally be claimed while you file your tax return.
5. Pay down debt and invest for retirement at the same time
There’s often some debate around whether you should prioritize paying down debt or investing for the future first, but Gianola recommends doing both at the same time with whatever amount you can afford.
“I like the idea of making progress on more than one goal at a time,” she says. “The dollars you put into a Roth IRA or 401(k) today are the most valuable dollars in your retirement portfolio because they’ll have the longest time to grow. So start saving for retirement as soon as you get a job — even if it’s just $10 or $15 dollars a month. But simultaneously have a plan for paying down your debt.”
Price also suggested tackling higher interest debt — like credit card debt — first since the longer you carry a balance on this debt, the more you’ll end up paying in interest charges. Getting high-interest debt out of the way can free up some extra cash for you to put toward other debts or invest more.
Your twenties can be both exciting and daunting, especially when it comes to balancing your financial obligations with the rest of your lifestyle needs and wants. But if you had to focus on just a few financial steps you should take right now, start with building your emergency fund, take advantage of your employer benefits, use the tax credits available to you, spend some money on things you love and make a plan for paying down debt and saving for retirement.
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.