Ah, our glorious 20s! Most of us who have passed this stage in our lives look back on it with fondness and a longing to “go back” because let’s face it – it was a fun time!
However, many of us tend to have a bit too much fun in our 20s. In fact, blowing thousands of dollars on wild nights out at Pangaea can have a long-term impact on your retirement years – because that money you used on Moet and Cristal would have been better saved, not spent.
Seriously, it’s OK to have fun. But your 20s should also be about establishing a strong financial foundation for your future – that means creating with a budget, saving up, and paying off your debts.
If you’re lucky enough to be in your 20s right now, don’t make the same financial mistakes many of us have made. Try your hardest to reach the follow 3 financial objectives before you hit the big 3-0!
#1 Eliminating Any Credit Card Debt You’ve Accumulated
Chances are good that some of the thousands of dollars you’ll be spending in your 20s won’t be coming from your bank account – your credit card(s) will also contribute to your “lifestyle” upkeep (hopefully “some” and not most!).
If you use your credit card, the easiest way to ensure you’re debt free is to make sure you pay off your balance every month so that you’re not borrowing more than you can payoff. However, “big” purchases can and do happen – I’m talking about holidays and luxury goods.
Pay these balances as fast as you can! Otherwise, you run the risk of having your balance creep up over time as you use your credit card(s) again and again while only paying the minimum – and that’s where the vicious credit card debt cycle begins to take hold.
Don’t make the mistake of “waiting” until you make “enough” money to settle your credit card debt in your late 20s/early30s – take care of it early. If your credit card debt is turning into a monster of a problem, be sure to read our article on what you need to do to destroy your credit card debt quickly.
#2 Creating Your Emergency Fund and Buying Insurance
Here’s a question – what will you do if something unexpected happens in the future that leaves you unable to work? No, buying more Playstation games to play while you’re spending your days at home is not the answer.
You need to save up enough money to build an emergency fund that’s equal to at least three months of your salary (six months is even better) in the event that you get retrenched – or worse, suffer the double whammy of suffering an injury/illness that leaves you with a big hospital bill and unable to work for months at a time.
While your emergency fund is meant to cover some of the “minor” problems that may arise, you’ll need to rely on insurance policies to cover the major “big money” disasters that may unexpectedly occur in life.
The three major insurance policies you’ll want to purchase for yourself in your 20s are:
- Medical Insurance
- Life Insurance (Term or Whole Life)
- Long-Term Disability Insurance
Having these insurance policies in place is an important part of establishing a strong financial foundation for your future, as it will protect your present AND future earnings from the financial shock of a unforeseen (and expensive) life event.
#3 Kicking Off Your Retirement Fund Savings Efforts
Going through your 20s with a “spend as you please” attitude that doesn’t even factor in “saving” into the equation will make this phase of your life fun no doubt. But when you’re in your 50s wishing you would have saved up more – you’ll regret the approach.
Seriously, by not saving in your 20s, you’re just making it tough to establish an adequate nest egg that’ll help you achieve financial freedom decades down the road.
Yes, you have your Central Provident Fund (CPF) account to look forward to. However, if you seriously think that your CPF account will be enough to retire on, that’s one fairy tale that’ll surely disappoint you.
The truth is that you’ve got to do the hard work of saving up for retirement on your own. That means putting at least 20% of your monthly salary into savings and investments that’ll turn a seemingly “small” yearly investment into a huge sum 20+ years down the road (that’s what compounding interest can do for you).
For example, if you only put $5,000 into a mutual fund that earns 8% interest – over 45 that $5,000 will grow to $160,000. Now imagine how much of a nest egg you can build if you put in another $5,000 every year – you’ll end up with $1,930,000+ in the same 45-year time span!
Not too knowledgeable about investing? Not to worry, you can always check out our Investing Learning Center to learn the basics!
How many of these objectives were you able to accomplish in your 20s? Share your thoughts with us on Facebook! For even more useful information on everything personal finance, visit MoneySmart today!