Big life decisions await you in your 20s. Should you get married? Change jobs? Start a family? Buy a home? Travel the world?
No matter what path you choose — and when — building healthy habits around money management now will help you meet your goals later.
“Habits are really what’s important,” says Jason Kirsch, a financial advisor in Santa Monica, California. “If you build a habit of doing something, day in and day out, those compound over years.”
Preparation is key for most big transitions. Parenthood, for example, comes with a steep price tag: The cost of raising a baby for the first year can range from around $20,000 to more than $50,000.
“As your life goals become more clear, having the room to figure things out will set you up in a better position,” says Ben Brown, a certified financial planner in Bethesda, Maryland.
Here are four healthy financial habits to practice now.
Responsible spending is the foundation for financial health. Use NerdWallet’s budget calculator to figure out where your money should be going. Then set aside time to track your purchases and see how they stack up against the ideal. You might discover that you’re spending too much on groceries, entertainment or dining out and need to cut back in one — or all — of those areas.
To curb day-to-day spending, Kirsch, the financial advisor, suggests changing your perspective on individual purchases. Instead of considering that $30 dinner from Grubhub a one-off expense, think about what your habit of ordering out will cost over one, two or even five years.
You can also manage spending by waiting 72 hours to make any impulse buys. This gives you time to think about how the purchase would fit into your overall budget and the value it might add to your life — and it could be helpful for folks who are motivated to spend by emotion. In a 2016 NerdWallet poll, 67% of millennials said emotions cause them to spend more than they can reasonably afford.
Your first savings priority should be establishing an emergency fund large enough to cover three to six months’ worth of living expenses. You don’t have to build that fund overnight. Start by setting smaller, more attainable savings goals — like $500 — and grow it from there.
Don’t be discouraged if unexpected expenses force you to tap the fund. It’s meant to be used and replenished. And, much like a budget, the goal amount shouldn’t be static. It’ll rise or fall as your circumstances change.
School might be over, but you should still keep your eyes on one grade: your credit score. A high one can help you qualify for loans with low interest rates, which is crucial if you plan to buy a house or a car. Even if you intend to rent for the rest of your life, many landlords use credit checks to assess prospective tenants.
Use NerdWallet’s free credit score tool to find out where you stand.
If you don’t have a credit score because you don’t have a credit history, start building your record by opening a secured credit card or credit-builder loan.
The median VantageScore for consumers in their 20s was 630 in 2014, according to a report from the Urban Institute. That’s barely in the range for “fair” or “average” credit.
If you need to raise your score, focus on spending within your means, keeping your level of revolving debt — such as credit card debt — as low as possible, and paying bills on time. Automating payments will help. You might even be rewarded for it: Many student loan servicers offer a 0.25 percentage point rate reduction for borrowers who use auto-debit.
Save for retirement
Saving for retirement might not seem urgent when it’s decades away. Almost half of millennials who have access to employer-sponsored retirement plans don’t participate in them, according to the Pew Charitable Trusts. But the long runway to retirement is exactly why you should start saving for it now. Thanks to compounding — the process by which you earn interest on both the money you’ve saved and on the interest those savings have already earned — an early start can give you a big advantage.
Say you saved $100 per month for five years, starting on your 20th birthday. By age 67, assuming a 7% annual rate of return, your money would have grown to more than $118,000 — after you’d contributed only $6,000.
In comparison, if you saved $100 per month starting at 35 and ending at 67, you’d have about $132,000. That’s just $14,000 more than in the first example, even though you’d have saved for 32 years and contributed more than $38,000.
» MORE: 5 investing tips for your 20s
If your company offers a 401(k) match, meaning it’ll match your contributions up to a certain percentage, max it out. It’s free money. If you don’t have access to a 401(k) through your employer, consider setting up direct deposits from your checking account into an individual retirement account. If you never see that money, you’ll never be tempted to spend it.
This may sound like a lot of work, but establishing these financial habits now sets you up for success later — even if you’re not sure what “later” will look like.