Personal Finance In Your 20s
A guide for wealth-being
I’ve seen people struggling in their twenties, REALLY STRUGGLING, to get the little things right.
Ranging from savings not properly allocated to unnecessary expenses, not planning your next five to ten years with discipline and enough brains can make the difference between a stress-filled life and a life actually worth-living.
These, right here, are the 7 best thinking patterns to ingrain in your life right now if you want to prevent those horrible financial shockwaves that could, potentially, undermine your next decades.
1. Develop life-long valuable skills
This might be the hardest guideline to follow, for developing such skills takes years and years if you’re not already talented at them.
These are the type of skills that, associated with good general knowledge, make societies advance or stray away from corruption. Say, for example, writing; this can be very useful in corporate environments where having the right way of saying things can make the whole difference between a failed and a successful proposal. Maybe you love photography already but don’t feel competent at it; go on and invest in a course!
2. Don’t use your credit card, goddamn it!
This is a shamefully common pitfall; it never ceases to amaze me how oblivious people can be! A card that’s made to specifically take more money away from you as you take longer to pay, and that permits you, specifically, to spend money that you don’t already have is an obvious sign that something’s not right. That’s it. Credit cards are made to take as much money away from you as possible. Stop using them!
3. Avoid buying a vehicle
This might sound exaggerated, but just do the math.
Let’s say you’ve been saving up through very hard work, and you now have 40k to spend on a car (or maybe you haven’t paid much attention and can’t wait to fall in debt).
Now, let’s say your bank has a fixed-term deposit interest rate of 3% monthly. If you capitalize, that is, if you take those 40k into the fixed-term deposit for a month, then take the $40k with interest and re-invest it for a month and so on for a whole year, and every month you add $350, at the end of the year that makes almost $61,647 total!
And you don’t even need to start with such a large amount of money. Just imagine you are earning $2800 a month at 21 years old. You put into a fixed deposit $560 from your income each month, with 3% monthly returns. If by 25 you haven’t gotten a raise (YET), you still would have a whooping $60,222 by the end! To have a reference, the average 30 years old has only $45,000 saved.
4. Make the most out of compound interest
The previous example used the immense power of compound interest, see. If you invest an initial amount “C0”, and every time you capitalize you add an amount “C1”, at an interest rate “i”, then after “n” capitalization terms you will have an total amount “k(n)” like this:
k(n) = C0 * (1+i)^n + C1 * ((1+i)^n-(1+i))/ i
Which is, you can confirm, the same formula I used for the car example.
Any financial instrument that allows compound interest is a potentially great investing. 401(k), for example, is pretty much one of the best options out there.
5. Don’t leave your parent’s home too early
I know, I know, you might have annoying parents. If you live at an abusive home, of course, you should consider leaving as soon as possible. But, if that’s not your case, then I exhort you to stay.
Paying rent will be costly, and in the long run it will, no doubt, damage your finances. And don’t even get started with buying a house! You might as well have committed financial suicide.
6.Stop spending money on cigarettes and/or alcohol
There are high prices to pay for being an addict, monetary and health-wise. I personally struggled with alcoholism from the age of 17 up to 21 years old, while I was working as a freelance translator. I was making good money, but it all went down the drain (quite literally).
If you’ve got emotional issues, the best thing to do is confront them; very few people will help you in the process, but accept and cherish those who are willing to.
7. Control your impulse shopping
Impulse shopping and credit card use, the great enemies of saving.
Apply yourself into thinking, anytime you wanna buy something, if that something is necessary, or only a “treat”. Then, avoid buying such “treat”.
It may be your anxiety at play, or something completely different, but try to control it. Impulse shopping like many people do, the same people who buy clothes not to use them ever, is a sure way to stay poor.
And those are pretty much the most important financial habits to get used to in your 20’s. Are you already using some? If not, don’t wait till next month, start today. Your future you will be grateful.
