What is life like in your 20s? Of course, if we ask different people, we will all get different answers because every twenty-year-old financial situation is different, but one thing that can be applied to all are these money moves to make in your 20s but can shape your 30s, 40s, and so on.
The path to succeed financially is the same. These 10 tips can help you set yourself up for financial freedom in the future by focusing on the actions you can take today.
Everything compounds, including the money moves you start today; therefore, thinking about it like this, compounding makes a lot of sense if you start in your 20s.
To spend less than you earn is the starting point if you are serious about smart money moves to make in your 20s and changing your future, and building anything worthwhile in personal finance.
It doesn’t matter how much you earn you have to spend less than that and invest or save the gap. The teen who earns £20,000 annually and spends £18,000 will build wealth faster than the bank executive who earns £100,000 and spends it all.
You must do the following to achieve the goal of spending less than you earn.
Create a budget and stick to it. There are numerous budget types and tools, so pick one and stick with it. A budget means making a plan for your money before spending it, which means you are proactive. Your budget tells you if your planned expenses are more than your income; if that’s the case, you need to make adjustments.
Your budget categories will be dependent on your needs, wants & goals. The only rule here is that your monthly expenses must not exceed your monthly income.
Read: How to create a budget.
The second thing is to track your expenses. A budget that isn’t tracked and monitored will fail. The main aspect of your budget you need to track are those expenses that are not fixed.
What do I mean? If you pay rent, chances are your rent is a fixed amount, but your feeding, for example, isn’t fixed, so you have to track areas like feeding, so you don’t spend more than what you budgeted while you can automate your rent payment.
You need to build a good credit history and credit report to qualify for and get the best rates on financial products like a mortgage. In addition, a good credit score will save you money in interest payments.
The easiest way to build credit is to get a credit-building card. However, it would be best if you were careful with credit cards. They are not an extension of your income. Instead, use them like a debit card and pay your credit card balance in full every month.
There are other ways to raise your credit score without having a credit card bill, like Experian Boost, self-reporting your rent, putting your name on more household bills, and applying for a secured credit card account (this operates like a cash-backed card)
Credit cards are not an extension of your income
Building an emergency fund when you’re in your 20s is a smart money move that can help you deal with unexpected expenses like medical bills, car repairs, and losing your job.
If you have an emergency savings fund, it will be much easier to avoid going into debt in the event of an emergency.
As a rule of thumb, you should have enough money saved to cover your living costs for three to six months.
The trap of the 20s is to think that now is not the time to think about retirement. The reason for this mindset is the kind of mental picture associated with retirement; many people in their 20s think it’s for older people, I still have all the time in the world but instead of thinking about retirement in the traditional sense think financial freedom or financial independence.
Remember, we said everything compounds; therefore, compounding makes a lot of sense if you start in your 20s because of time.
Learning how to invest is the first step to doing it right. This website is full of resources that will assist you to start investing the right way. Books and podcasts are also great ways to learn how to invest. Check our growing list of recommended books.
When you’re in your 20s, the best way to start investing is through a tax-advantaged account like a pension, Roth IRA, ISA, or TFSA. These investment accounts are set up to grow tax-free.
If you have access to a workplace pension, make sure you put in enough to get the most out of your employer’s matching contribution, this is free money.
Investing today is great because it’s easy enough that you don’t need a financial advisor.
There are other creative ways to save for retirement or make a retirement plan, such as building a real estate portfolio.
Being financially literate means you know how to manage, save, and invest your money well and have the confidence to do so.
No matter where you are in your financial life, you can learn more about money by reading books, listening to podcasts, youtube and signing up for financial newsletters.
Today is the best time to understand the basic language of personal finance like
You can’t spend money if you don’t make any, and your 20s is the perfect time to start making money, building a career, and cultivate career skills by working for someone else or starting your own business.
Your income is the foundation of your finances. You need to make money before you spend it. Having a second or third income stream through a side hustle or passive income ideas is important.
Your financial goals are like a compass because they show you the way to the future you want. For example, your savings goals can be short-term goals like saving for a gift, medium-term like saving for the down payment of a house, or long-term goals like saving for financial independence.
Unlike what we see on social media or hear from others, the path is usually not straight. Instead, it looks like a series of hills and valleys. This means you will make mistakes along the way, but you have to trust the process and keep going, which will be beneficial in the long run.
The best way to reach your goals easily and also keep at it for a long time is to
Automate your savings and investments. Automating is the best way to keep making progress toward your financial goals.
The first step involves setting up direct debits and standing orders on your bank account to move your money to your saving and investment account as soon as you get paid.
You have to determine from your budget what this amount will be.
In the second step, you set up your investment accounts to run independently. This means setting up investments to buy and the amount to spend monthly.
The first step is to move the money from your checking account to your investment account. Once the money is in your investment account, you must ensure it is invested instead of just sitting there as cash.
In his book The Complete Investor, Charlie Munger wrote that Three things ruin people: drugs, liquor, and leverage
There are two kinds of debt: good and bad. You should know the difference by the time you’re in your 20s. Most of the time, you’ll need good debt, like a mortgage, to get ahead, but you don’t need bad debt.
Bad debt is like a weight that pulls you down. Credit card debt, payday loans, and “buy now, pay later” loans are all examples of bad debt. They usually have high-interest rates and are used to buy liabilities.
On the other hand, good debt has low-interest rates and is used to buy assets or things that increase in value.
If you have more than one type of debt, you can use the Debt snowball method to pay them off. With the snowball method, you make minimum payments on all your debts and pay more than the minimum on the smallest debt until it’s paid off.
You then use that extra money to pay more than the minimum on the next smallest debt, and so on. That’s the snowball effect.
The Avalanche method is the same as the snowball method, but you start with the debt with the highest interest rate instead of the smallest amount.
Your debt plan needs to be part of your goals and reflected in your budget.
Many people in their 20s think they don’t need insurance, but that’s not true. If you have people who depend on you, for example, a family member or assets you want to protect, insurance can help you do that.
Different types of insurance to consider are term life insurance, income protection, car insurance, home insurance, and so on.
In your 20s, you can get the best rates on term life insurance because you are believed to be most healthy. It’s important to do a lot of research before you buy.
Your 20s are a good time to build life skills and good habits, and giving should be at the top of that list.
People think being generous is selfless, but many studies have shown that it’s in your best interest to be generous. Isn’t that selfish? Lol. The benefits of being generous affect both your mental and physical health. For example, it can reduce stress, increase a person’s sense of purpose, and naturally fight depression. It has also been shown to make people live longer.
