5 money decisions you make in your 20s that can hugely impact your financial future

An effective personal finance strategy involves making many small decisions that add up over time. But this isn’t to say that there aren’t some decisions more critical than others to your financial well-being.

For instance, how much you pay for the roof over your head will have a more significant impact on your bottom line than that daily stop at the coffee shop — even if your caffeine fix is an indulgence you can’t really afford.

I’ve broken down the five financial decisions many people face as early as college — and what to consider before deciding.

Related: 5 money habits that kept me broke in my 20s

How much you pay for housing

Housing is the biggest budget category for most of us. The more you spend on housing, the less you’ll have to spend on vacations, emergency expenses or anything else. Even spending $100 or $200 less each month could result in an entirely different quality of life.

Making the wrong housing decision can take a while to rectify. If you’re renting an apartment you can't afford, it may be impossible to move out without breaking the lease and incurring a hefty fee.

While a basic rule of thumb says you can spend up to 25% of your income on housing, you can also choose to spend less to free up more wiggle room in your budget.

Before signing a lease agreement, factor in what your future might look like in that space. Could your partner possibly move in? Do you plan to go to grad school? Will that cause you to work fewer hours? Thinking about these future expenses will help you choose a housing payment that fits your lifestyle now and later.

How you get around

Transportation is usually the second-biggest line item on our budgets. Many people don’t realize that their car loans can wreak havoc on their finances. Before buying or leasing a car, you should consider all the costs associated with that vehicle.

First, calculate the total car payment. Then, call your car insurance provider and ask them how much premiums will cost for the new vehicle. Insurance generally costs more for new cars, and if you’ve been driving a 15-year-old vehicle, you may be surprised at how much your insurance goes up when you buy or lease new.

Also, compare your current gas mileage to the new car’s mileage. The GasBuddy calculator is a valuable tool for seeing how your gas costs may differ from one vehicle to another. And don’t forget to factor in the annual cost of maintenance. RepairPal.com calculates the average cost of repairs for specific makes and models, so you can choose the most reliable car for your budget.

How much money you make

While it’s easy to reduce expenses, there’s a limit to how much you can cut from your budget. But there’s another side of the cash-flow equation: how much you bring in. And when it comes to income, there's no ceiling.

Even when you get your first job, you should work on negotiating your salary and benefits. Not actively working to improve your income is one of the most harmful financial mistakes you can make. The easiest way to increase how much you make is to change employers. Employees who switch companies on average get a  5.3% raise, compared to just 4% annually for those who stay with their current employers.

If you want to stay with your current employer, you should still seek regular raises. Learn how to negotiate more than just an annual cost-of-living increase. Figure out what skills and value you bring to the company and how much they’re worth. If you get a promotion, ensure the new income is in line with industry standards.

Related: I finally learned how to negotiate in my 30s. Here's what I'd tell my 20-year-old self.

Who you spend your time with

Most people think finding a life partner is a romantic decision, but it’s also a giant financial step. Even when you’re just dating, your partner can significantly impact your finances. If your partner has good financial habits, then you may end up saving more money because of your combined income. But if your partner is poor with money, then they could drain your savings and put you on a path to bankruptcy.

And if you end up getting married, you will tie your finances to someone else’s. If you open a credit card or take out a loan together, then your partner’s credit habits may impact your own credit score.

And if you end up getting divorced, your finances may suffer for years, especially if you’re a woman. Divorced women have a lower chance of retiring than women who have never married.

Related: 3 money conversations to have with your partner

How you invest in your health

You might tend to think about “investing” as a purely financial move — like putting money into the stock market or a retirement account. But investing in your health may be just as important.

But prioritizing your health early on in your life can help prevent health complications down the line.

Focusing on regular exercise, eating a balanced diet and consistently visiting your doctor can be as important as budgeting and investing. All of this may help you pay less for insurance, medications and doctor's visits. Your future self will be grateful.

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