Suddenly, as you grow into becoming a young adult, responsibilities start piling up. Money management is one of them. Start preparing your finances while you’re young to make sure that your future is secure.
Your 20’s and early 30’s mark the years where your finances start to become a major concern. As you start setting goals for yourself, possible family responsibilities, and managing the daily finances, try to be more aware of how you are spending or saving your money. This will give you the chance to prepare for certain financial situations like medical emergencies or help you grow your money to reach a milestone.
How to be financially successful in your 20’s
The key to beginning your financial success or preparing for financial security is to cover three main areas; investments, savings, protection. As you make crucial steps in these areas, you’ll be able to manage and prepare your financial situation to make the most of your money when you’re still young. Guaranteeing a more stable future, or for the possibility of a loss of income, etc.
Investing in your 20’s
Start investing a small part of your income so that you can maximise returns as your money grows over time. Time matters more when investing so start small from between 5-10% of your paycheck. Investing consistently while you’re young yields more benefits than investing larger amounts when you’re older. Invest in foreign emerging market stocks, small-cap stocks, or domestic growth stocks.
Saving in your 20’s
There are many reasons why you should and methods how to start saving. Set up a budgeting plan every month by putting away a portion of your income and saving where you can. Try and cut back on expenses you don’t need; like expensive takeaways every night, the latest tech gadgets every month, or frequent holidays abroad. Start putting money towards an emergency fund to cover emergencies or unexpected expenses in the future, so that you avoid using credit or your savings.
Protecting your finances in your 20’s
Whether you’ve just begun your first job or have been working for a while now, having income protection insurance is crucial to protect your income when you find yourself unable to work. This will ensure that your efforts to save and invest are not impacted by unexpected illness or injury. Protect your finances by avoiding the incurrence of debt. Do this by paying off high-interest debt when you can and living within your means.
Stay clear of these financial mistakes
- Not saving enough: Failing to create a safety net when you’re younger can lead you to fall into debt to cover losses. Saving enough now will give you peace of mind for your plans and make saving for long-term goals like a new car or a much needed holiday.
- Collecting bad consumer debt: It’s important to know the difference between good and bad debt. Good debt from your student or home loans is easy to manage correctly, bad consumer debt from unnecessary credit card purchases can be difficult to pay off in the long term. Pay them off to avoid revolving debt.
- Overspending: Find the right balance between enjoying your youth and saving for your future. Creating memories does not have to be an expensive exercise. Go on hikes or beach trips with your friends instead of splurging on one indulgent supper out.
- Not investing more: Bigger dreams like starting your own business or putting your first child through college requires more financial support besides saving. Invest as soon as you can into stocks, on top of saving.
Financial planning tips
Most young adults aren’t formally taught financial education topics, despite the huge role it plays in our lives. We’re expected to learn them as we navigate the world. Here are a few tips to help set you up financially and avoid common stumbling blocks.
- Control your spending urges to avoid making purchases on credit. Be patient and rather save up.
- Manage your own finances where you can. Hire a reputable fee-only financial advisor if you need the extra support or advice.
- Start saving towards your retirement. Although thinking of retirement may seem premature to think about when you’re 20, it’s the best decision you can make to set up your future.
- Make sure you understand how taxes work. Do your research and use an online calculator once you start earning an income to work out how much your tax will be.
- Protect and grow your money by putting it away into a retirement account, high-interest savings accounts, and money market funds.
The best strategy to approach your finances when you’re young is to think of how stable and secure you want your future to be. Nobody wants to worry about unexpected financial loss. But preparing for them in advance while growing your money will give that extra peace of mind.