Don’t you wish you could go back in time? I mean, it would be pretty cool to travel time in a nuclear-powered DeLorean Back to the Future-style to warn the younger “you” about the horrible personal and professional mistakes you’d make in your 20s.
But alas, that’s impossible.
For those of us 30 or older, all we can do is look back on our 20s and be thankful that we learned from the many of the financial mistakes we made.
However, if you’re still in your 20s, take this article very seriously – because these are 5 bits of financial wisdom most of us 30 and above wish we knew about money in our 20s.
#1 Learn to Live Within Your Means
This is one of the toughest and most dangerous lessons to learn in your 20s. That’s because the longer it takes you to learn this lesson, the more damage you’ll end up causing to your financial well-being.
Let’s be honest, your 20s will be a dangerous time when it comes to money. It’s when you start working your first “real” job earning a decent monthly salary and it’s also when credit cards come into your life.
For someone who couldn’t afford the “good” things in life, it’s too tempting to want to use your hard-earned cash and credit to support a lifestyle that becomes increasingly unsustainable. Also, once your expenses start to outpace your earnings, you’ll start to rely more on your credit – setting you on the path to runaway credit card debt.
Honestly, the only way to prevent such events from occurring is to live within your means, use credit sparingly and most importantly – distinguish between what’s a “want” and what’s a “need” in your life.
#2 Learn to Invest as Soon as Possible
Retirement is probably one of the smallest concerns on the minds of most people in their 20s. After all, there are more pressing concerns such as exams, getting a great first job and landing a date with that guy/girl that caught your eye.
I mean, you’re in your 20s – why think about something that’s 40+ years away right? Simple – because time is money.
The earlier you invest your money, the bigger the nest egg you’ll end up having when it finally comes time to retire. So invest early and take advantage of the wonder called “compounding interest.”
If you’ve read our article on the 3 Biggest Financial Objectives You Should Aim For in Your 20s, you’d know that putting $5,000 in a mutual fund that earns 8% interest will grow to $160,000 over a span of 45 years. And if you put in $5,000 annually, that sum will grow to a whopping $1,930,000+over the same time span.
If you’re interested in learning more about investing, just check out our Investing Learning Center.
#3 Learn to Budget and Plan Your Finances
In your 20s you’re going to go through plenty of financial problems, that much is certain. However, many of these problems including the biggest – being broke every month – can actually be solved by simply creating a budget and planning your finances.
Creating a budget isn’t as hard as you think it is. The hard part is having the discipline to stick to it!
Once you’ve established your budget, there are three very important things you must do to plan your finances so you save the maximum amount of money every month:
- Pay Yourself First
- Categorise Your Spending
- Forecast Your Spending
Once you’re able to put money into your savings (pay yourself first), divide your funds amongst different categories (savings, investments, expenses, etc.), and come up with spending projections (forecast your spending), you’ll be able to gain control of your finances.
#4 Learn the Importance of Insurance
It’s true that most of us feel “invincible” when we’re in our 20s. Hey, I was in my 20s once and I know how easy it is to adopt a “nothing will ever happen to me, I’m King of the World” mentality.
The sad thing is that the unexpected can and will happen – it doesn’t matter is you’re in your teens or 70s. That’s the truth of it. Unless you’re clairvoyant and can predict danger before it happens, you really need to protect yourself with insurance.
I know it’s a daunting task, but you should make sure you purchase these insurance policies during your 20s:
- Medical Insurance
- Life Insurance (Term or Whole Life)
- Long-Term Disability Insurance
Seriously, buying insurance is an important part of setting a strong financial foundation for your future. That’s because it’ll protect the wealth that you’ve already accumulated in your 20s (hopefully) and will protect you down the road too.
If you’re looking to learn more about insurance, check out our Insurance Learning Center. Also, don’t forget to check out our insurance comparison page so you can evaluate and choose the right insurance policies free of charge.
#5 Learn to See That Money Can’t Buy Affection
You’ve probably heard the saying that “money can’t buy happiness,” right? Well, that’s one is still highly debateable depending on your way of thinking. However, one thing money cannot buy is the “true” affection of others.
The truth is that in your 20s, you’re going to run into “leeches” who will act friendly towards you as long as you give them something – namely dinners, drinks, loans (which aren’t paid back) and expensive gifts.
In short, these kinds of people – whether they’re posing as your friends or as a significant other (girlfriend/boyfriend) are going to sap your hard earned money or worse, your credit.
It’s a tough lesson to learn. But the sooner you realise that it is trust that win true affection, not money – the happier and more financially sound you’ll be.
Keep updated with all the news!
Get the latest personal finance tips and tricks delivered to your inbox!
We promise never to spam you!