The twenties are a time of great change for most people. It's an age where many people try out different careers and begin to think about things such as savings and retirement accounts. There are a lot of financial decisions that are made during this time. These decisions may change in the future but people in this age group often find themselves torn between a variety of choices. Here are some choices that many find themselves making during this time.
Money Market Accounts Versus Savings Accounts
Putting money away for future expenses is something that many people start to do in their twenties. And there are a lot of things to save for! Things like weddings, vacations, and health expenses can add up. While many start saving by opening a savings account, a money market account is also an option. The main advantage of opening up a money market account versus a savings account is that it offers a higher interest rate than a traditional savings account. This means more money for the saver. However, in some cases a savings account may be the better choice. Depending on the account and the bank, the amount of transactions out of the account is limited in number and usually no more than 6 transactions a month are allowed. A traditional savings account allows more freedom when it comes to withdrawals from the account.
IRA Versus 401(k)
Retirement may seem very far in the future to people in their twenties, however it is something that should be considered as early as possible. IRAs and 401(k)s are two of the most popular retirement savings options. It's usually these two options that people find themselves torn between when they start saving for retirement. Both options are similar when it comes to how much money can be saved. The main advantage of a 401(k) is that employers often contribute a matching percentage of what is placed in the account. This can help savings add up quickly. IRAs are individual retirement accounts that can be opened at any time. These are a better choice for those who switch jobs often or work for a company that does not offer retirement benefits.
Renting Versus Buying
Another big financial decision that many make while in their twenties is whether to keep renting a place or whether purchasing is the better option. The answer to that is complicated and depends a lot on where a person lives. Buying a home in an area with stable and affordable home prices may be the right choice for someone who is planning on living in an area for at least a few years. However, renting is likely the best choice for people who plan on moving or are in an area with an unstable housing market. There are online calculators that can help make this decision but at the end of the day the answer will vary from person to person.
There are a variety of financial decisions that must be made when twenty-somethings strike out on their own. People in this age group should realize that it is never to early to think about savings accounts, retirement, or purchasing or renting a home.