Your 20s may be a time of freedom. You just moved out of home, got a good job and enjoying all that life has to offer. The future is bright and optimistic and the joys of being fully independent can be exhilarating and daunting at the same time.
Your 20s is the perfect time to build a solid foundation for your financial future. You have plenty of time to build wealth and an early start can easily guarantee a comfortable and wealthy life. However, most 20-somethings fail to strike a balance between the things they want to do now and the things they need to do to ensure a comfortable life later on.
Many people see their 20s as a bit of a ‘throwaway’ decade, but it’s definitely unwise to see it that way.
After all, this is the time when you might be planning for a wedding, thinking about starting a family, getting promoted for your job and some of you may already be thinking of ways to retire early and travel the world!
Well, the truth is, the earlier you develop a financial plan for yourself, the more likely you will uncover financial opportunities and make your dreams come true. In this article, we explore the most important financial lessons you must learn in your 20s so you can get ahead.
An emergency fund or rainy day fund (as some like to call it) is money put aside to cover the cost of an unfortunate event. Building an emergency fund is one of the most important saving lessons you should learn in your 20s.
Every young adult feels invincible, like the can take on the world. They neglect putting aside money for emergencies and it comes back to bite them. You should aim to save 3-6 months worth of pay for an emergency fund. The bare minimum that might be able to cover the costs of an emergency would be $1000, but that is really cutting it close.
In order to build a healthy emergency fund specific to your circumstances, simply follow the steps below:
Action point 1: save $25 a week for ten consecutive weeks. This is the challenge I’m setting you, feel free to let me know when you’ve achieved with this goal
Action point 2: After you’re finished reading this article, do a complete audit of your insurance payments. That means visit insurance websites, get quotes and start saving on your premiums!
Action point 3: How often do you check you bank accounts and take note of the bank fees and interest rates? Take some time to do some research and set up an account specifically for saving money
People in their 20s are looking to explore and experience. However, it can be incredibly expensive to venture out and try out all these new places and experiences. By taking advantage of services such as Groupon you can try out a variety of local Australian businesses at a discounted price.
Also, you can use social media and other means to keep track of any special deals that may pop up at a place that you would like to explore. Many trendy businesses host special events such as a “Happy Hour” to attract more customers. If you stay alert and look for these opportunities then you can explore and experience without having to bust your wallet.
There’s an over-abundance of website that can help in this department. Besides from group buying websites like Groupon, you can sign up to loyalty programs from your favorite retailers. If you are a regular coffee drinker, ask for a loyalty card from that Cafe or restaurant. Want to go on a holiday, make sure you do your homework and compare all your travel options.
Everyone buys things that they don’t really need, the worst offenders are usually people in their 20s. It can be liberating and exciting to go on a spending spree, but you should control yourself or risk getting yourself in debt.
Overspending is also a really bad habit to develop. It’ll work against you when you attempt to achieve your financial goals. The majority of the things you spend money on will also have no return value, so it is essentially wasted money. That’s not to say you shouldn’t spend any money, but make sure you are careful with how much money you spend.
Spending money is fine, but like most things in life — it should be done in moderation. According to research, we commonly overpay on all of these things:
Action point 4: Go through the list above and see if any of those things apply to you. Make a commitment to cut those expenses in the coming week. They’ll will help reach your financial goals and milestones faster.
Bad credit stays with you forever. Also, bad credit accumulated at an early age (such as your 20s) looks especially bad because it is an uncommon occurrence. You should aim to develop good credit which helps convince lenders and banks that you can manage your finances. Developing good credit can also help you get lower rates on credit cards and loans in the future.
Paying all your bills on time and not maxing the limit on your credit card all contribute to a good credit score. Even if you regularly max out your credit card but are able to pay the bills, it still doesn’t reflect well on your credit score. My advice is to use your credit card sparingly and develop good credit habits. You’ll thank yourself for being wise with your credit card when you obtain a brand new shiny one with a super low-interest rate.
When it comes to personal debt, young Australian consumers are notoriously reckless. Some things you can do to avoid a bad credit rating:
Action point 5: Your credit rating is a telltale sign of your financial health. I’m sure you go for a health check up on a regular basis. There’s every reason for you to go for a financial health check up as well. Click here to check your credit rating.
The most important saving lesson you should learn in your 20s is how to be financially savvy. Things such as moving out on your own, not relying on your parents and paying your own bills are skills that you will keep with you for the rest of your life. It will also teach you how to budget and live within your means.
As you become more experienced in being financially independent, saving money will naturally become easier. You’ll quickly learn what things are necessities and how much you are able to spend without getting yourself into financial trouble.
Becoming financially independent is the absolute starting point for you to start your first step towards investing. They say you should ‘let your money work for you’ and that is exactly what your hard earnt money must learn to do. In your 20s, you can start thinking about building an investment portfolio, buying your first home and in Australia, property investment is also a very popular vehicle for building wealth.
Some of the things a young investor should be thinking about before dipping they dip their toes into investing include:
The earlier you start investing, the longer your time horizon and the more powerful the law of compounding becomes. Investing is not a get-rich-quick scheme, it requires a strong commitment over a long period of time.
The most powerful thing available to an investor is knowledge. Whether you are interested in shares, bonds, or property. Having the right type of knowledge will help you build a successful investment portfolio. But beware, having the wrong knowledge or having blind spots can sabotage your efforts.
I’ve compiled a list of things topics you should read in order for you to start investing:
Action point 6: Get a comprehensive financial plan that will set you up for financial success. Formulating a plan for your savings and expenses, your debts, investment goals when you’re in your 20s will set you up for life.
Oh and one last important thing! Since you are young and most likely tech savvy. We’d like to show you some money management apps that will help you achieve your financial goals.
Learning to save and invest your money in your 20s is an ongoing lesson. The 20s are the most exciting time for most people and it is easy to neglect your financial future. But, if you want to set yourself up for financial success in the future it all starts during your 20s.
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