The way you spend money in your 20s can affect your finances for many years to come. That’s why it’s very important to work on creating healthy financial habits now so that you’ll benefit later. Developing good spending and saving habits, learning to budget, and investing in your 20s can help you prevent needless debt, put away money for the things that are important to you, and take advantage of compounding to amass a fortune in the future.
It may be easier than you think to build a sound foundation for your future. Learn these 11 money skills in your 20s, and you’ll be happy with yourself in your 30s, 40s, 50s, and beyond.
1) Learn How to Create Your Budget
Your first step is to take a look at your income and create a budget. A budget will help you decide when and how to spend your money, giving you the power to decide where your money goes. It also gives you permission to relax, since you know your priorities are accounted for.
Start by creating and following a budget now to help you manage your money without stress.
Tip: You may want to consider using a budgeting app. Many applications are designed for general personal budgeting, while others have more advanced options, such as sending a warning when you’re close to overspending.
Try starting with something simple, such as the 80/20 budget or the 50/30/20 budget. These simple guidelines make sure that you are accounting for both saving and spending.
2) Have Regular Budget Meetings With Yourself
Every night, take five minutes to go over your budget and see whether you’ve stayed in line with your spending. Doing this regularly will give you a clear picture whether or not you are meeting your spending goals for the month. A daily review may seem like a lot, but this schedule keeps the check-ins brief, since you only have to review one day’s worth of transactions.
If you are married, be sure to have a discussion with your partner so you can each stay on track with your spending goals. If both partners are monitoring the credit card accounts frequently, you won’t be caught off-guard by large purchases or bills.
3) Balance Your Accounts Each Month
It may seem like a lot of work for very little payoff, but balancing your accounts, or keeping track of the balance in your checking account, is a necessity. It can keep you from overdrawing your account and paying unnecessary late fees or overdraft fees. It can also help you to catch identify theft or see if someone has stolen your account information.
Balancing your checking account is not too difficult. Begin by gathering your most recent bank statement, a calculator, and a worksheet if you need help with the calculations. Then compare your transactions to the bank’s list and spot any differences.
Warning: If you find an error, contact your bank right away. They will work with you in the event of unauthorized transactions, but you may still be responsible for some or all of the loss, depending on the circumstances.
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4) Set Financial Goals
To reach your lifelong dreams, you need to set financial goals. By setting long-term, mid-term, and short-term financial goals, you’ll be one step closer to being financially secure. Plus, if you aren’t working toward anything specific, you’re likely to spend more money than you should. A long-term goal, for example, might be saving for retirement, while a short-term goal could be building up your emergency fund.
Estimate how much money you’ll need to meet each of your goals. A key to achieving these goals is to assign them specific Naira amounts. Don’t just say you want to save “a lot” or “enough.” Say “#200,000,” or whatever amount is right for your situation. Specific, actionable goals are much more likely to net results.
Tip: There are various online savings calculators you can use to determine how much you need to save each month to reach that goal within your set time frame.
5) Plan for Your Financial Future
Take the time to imagine and plan for your financial future. This plan should take you through all of your major financial milestones, from buying a home to buying a car, to paying for your children’s college, if you decide to have kids.
It can feel overwhelming to sit down and plan it all out, but doing so can help you prioritize your goals and allow you to know when and how to spend your time.
If you need a little extra help with this task, consider meeting with a financial advisor. They can help you figure out the financial side effects of your major life decisions.
6) Start Contributing to Your Retirement Account
You’ve probably heard this before, and that’s because it’s pretty sound advice: You should start contributing to a retirement plan starting with your first job.
Contributing early gives you time to let compound interest work in your favor. For example, say you’re a 25-year-old who invests N400,000 a year for eight years and never invests an additional naira after the age of 33. You will earn more by the age of 65 than a 35-year-old who invests N400,000 a year for 32 years, even though the 35-year-old invests four times as much.
A good goal to work toward is to set aside 15% of your income to saving for retirement. If you can’t contribute this much right away, it’s OK. Work up to it as you increase your income and pay off debt.
7) Get Good at Finding Deals (Cheaper But Quality)
There are so many ways you can save money on things you normally buy, such as clothing or food and drinks (groceries). This may mean learning the best time of year to buy linens or finding a deal on a new car.
You can find ways to save on everything from your groceries to your furniture. If you make looking for a deal a habit, you will be able to save significantly over the course of your life.
8) Learn How to Avoid Impulse Shopping
A smart shopper is a bit different from a deal hunter. Once you have perfected the art of finding a good deal, you need to become a smart shopper and determine whether you need the item at all before you buy it.
That does not mean you should not buy things you want. It means you have the ability to classify wants as such and to make sure that you have the money available to buy whatever you want without dipping into savings. A good idea is to wait at least 24 hours before making a major purchase.
9) Save Up for an Emergency Fund
One of the most detrimental financial habits you can develop is to rely on credit cards to cover daily expenses when you go over budget.
Instead, it’s important to have a good emergency fund in place so you don’t need to use credit. Aim to save up three to six months’ worth of expenses. That will cover you in the event of an emergency, such as losing your job or dealing with an unexpected loss in the family.
10) Focus on Networking and Career Growth
Part of your financial picture is making sure to earn an adequate income. Concentrating on job performance and career growth will help. That’s why it’s important to keep your resume (CV) updated so that when you hear of a good job opportunity, you can take it.
It is also important to continue to build your professional network, even if you like your job. A strong professional network will make it much easier to find a new job when you are ready, or may even present you with a great professional opportunity when you’re not looking.
11) Invest At An Early Age
Young investors today who wish to begin a savings plan have a lot of investment options. There are not only thousands of products and services to choose from, there are almost as many different firms and vendors that market them in various capacities. Fortunately, deciding which types of investments are best is not as hard as it may seem.
If you are young, your greatest financial asset is time and compound interest. At this point in your life, your primary investment objective for your long-term savings should be growth. Investors in their 20s will have at least 40 years over which to accumulate retirement savings.
This means that most or all of your long-term savings should probably be placed in some form of equities, such as individual common stocks and stock mutual funds and perhaps real estate, either in the form of a personal residence or a mutual fund that invests in real estate holdings, called a REIT (Real Estate Investment Trust). It is necessary to be able to increase your purchasing power in your retirement savings over the course of your life because you will need every penny you can gather after you stop working.
As a young man or woman, you should set aside 10% or 15% of your monthly income to savings, then 20 percent of that savings should be for investments.
Real estate is one of the most vital types investments because the value of the property/asset increases with time, for example if you buy a land in Lekki phase 1 today, in the next 5 years the value of that land would have increased, hence making more money for you if you decide to sell it out or rent it.
Another area where you can invest in as a young person is investing in a Start-up company, all of this big companies that you see around the country started as a “START-UP” company and today they have expanded to multinational companies.
Take a look at this investment chart below:
This chart shows how much you’ll have at the retirement age of 65 if you start saving certain amounts at certain ages.
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