We continue our summer tradition of chatting with young adults and recent college grads about financial decision making.  Our conversations are often well received as the message is not coming from a parent or family member!  This means our chat will likely be heard, perhaps retained, and hopefully put into practice.  It also helps that there are no costs or obligations, just talking which may create a spark.  Our discussion centers around the understanding of cashflows and creating good habits early in your professional career.  Why?

Good habits created early tend to stick.  Revisiting your habits and understanding your financial opinions at all ages is important, especially as your career begins.  As you grow, it’s critical to assess new information and be open to different viewpoints.  New experiences need to be factored in too, including the lessons learned from various financial choices.

Having a raised awareness of money (and your time) in your 20s can go a long way.  You don’t need to obsess about a retirement date or fixate on accumulating X dollars by a certain age.  It’s much simpler than that.  It starts by understanding your cashflows.

What’s available to spend now will determine many of your choices early on.  The key is taking advantage of time while still leaving dollars to be spent on fun today.  How do you do this?

It starts by having a dedicated checking account where your pay is automatically deposited to.  Before this takes place though, it’s a good idea to take advantage of employer retirement matching if available.  Roth contributions in your 401k offer flexibility in your 20s, and a Roth IRA may be established should you leave your employer.

Before investing beyond a company retirement plan, cash reserves need to be determined.  It’s good to accumulate an emergency fund that’s separate from your primary checking account.  Add to it until your content with the amount accumulated in saving, then leave it for a rainy day.

A second savings account for more accessibility helps address the costs of attending weddings, travel with friends, and larger expenses.  Planning for these takes practice when monthly cash flow may not cover the entire cost.  Some choose to get a credit card and charge these expenses for rewards points.  This works assuming one understands how credit cards work and the impact they have on your financial profile.

Holding a secondary savings account that can be liquidated and refilled multiple times from cash flow may boost confidence in spending choices.  By adding to this account before liquidating for an upcoming event, assists with prepaying some of your expected expenses.  This also removes the sting of splitting up costs with friends when you return from your weekend.

Embracing automation and moving money without having to think about it sets you up for success.  This allows credit card payments to be made on time for the full balance and avoids interest.  It also refills accounts that have recently been depleted.

The best part of understanding your cash flow is that you may spend the rest as you please.  No need to worry or fret about purchases today, you’ve got a system.  The key to spending and savings in your 20s is controlling your cash flow so it doesn’t control you.

Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Flowerstone Financial are not affiliated.

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