#YOLO is not used very often anymore. However, still many people think their 20s are not the right time to care about their finances. You only live once, so have as much fun as possible and don’t worry about tomorrow. But believe me, you also want to have a great time in your 30s or 40s or 50s…you see a pattern?
First, you should be able to have fun during your whole life and not just when you are young (what does ‘being young’ actually mean? For my 93-year old grandma, my mum is still young and she is already 62!). Having fun also doesn’t mean, that you need to spend all of your money like a fool. You can have fun without spending money.
Another thing to note is, that your 20s are the perfect moment to build the foundation for your wealth. You can set yourself apart from all of your friends by just doing some basic actions and you will be happy your whole life for taking them. Also, through the power of compounding, you can even start your path to becoming a rich man.
Today, I want to share with you my 8 goals that you should achieve in your 20s to improve your finances for the rest of your life.
1. Find a job that you like
Some decades ago, you’ve started your job and you were pretty sure that you will retire on the same career path that you’ve chosen. Today, it’s different. Jobs get automated, others are created and required due to new technologies. When you’re selecting a job in your 20s, it will probably be something totally different than what you will retire in.
That’s great and interesting and limits the impact of the initial decision. However, you still need to study for many jobs or you will need a job training before starting to work in that job field. Another thing to note is, that you often work 40 hours per week or more. That means a huge amount of your time you’re spending on this job. I don’t know what you think about it, but I would rather have a job that I like instead of doing something that I hate and look at my watch every 5 minutes. You don’t want to waste your time.
So make sure, that you find the right place for you, even if this means to switch your course of study once or twice (as I did) or starting again from scratch in a whole new job field.
2. Build a long-term financial plan
As soon as your education phase is finished, you should create a long-term plan for your finances. We are lucky to have thousands of options and many of those were not available to our parents. So think about them and what you want to do with your life. Do you want to own a boat later? Or a big house? A family? Maybe you want to retire early. But at what age do you want to retire early then? Maybe you want to become a millionaire.
Again, there are thousands of options and things to accomplish or to own. There are at least the same amount of ways to achieve them. You won’t have the perfect plan right away as things and interests are changing in your 20s often. However, some of those goals will last and you can already set everything up for it.
Think about devoting some money for your retirement, for example, is one step to take here. You also want to make sure that you let the money work for you by buying stocks or real estate properties. I will come back on that later.
3. Plan how to get rid of your loans
Depending on when you have entered the job market, you want to start to pay back your student loans or any other kind of loans in your 20s. There are many great blogs (like Damn Millenial) that write about getting rid of debt and I can’t help you very much here as I haven’t had loans to pay back until now.
However, before you pay back these loans you should create a plan. It makes sense to get rid of the loans with the highest interest rates first. Anyway, sometimes it’s hard to pay back a loan for several years and still knowing that there are 3 more left. If you think, you will need a small success and milestone to increase your motivation, it’s also fine to start by removing the smallest loans before. But remember, through the higher interest rates of the other loans this will cost you some money.
4. Learn how to spend your money consciously
Sure, now you have finally some money and it’s tempting to spend most of it right away. My brother does this right now by still having his student loan and now adding a car loan for 20k€ without having the money for the down payment. His employment agreement was signed just a few days ago and he hasn’t worked a single day yet.
Okay, but you also want to enjoy your life. How does this work? It’s actually pretty easy.
First, you want to live below your means. You need more income than expenses. Therefore, you don’t want to spend money on everything. Don’t try to keep up with all your neighbors or friends. You don’t know how their finances look like. You can afford anything but not everything. So, find the things that are important to you and cut back heavily on the rest.
After that, you want to make sure that you cover all the expenses that will come in the next years. Do you want to buy a new phone every two years? Then you can save for this upfront. Simply take the amount the smartphone will approximately cost and divide it by the number of months left. Put this money on a savings account that you can access all the time. You can prepare yourself for many of those larger sums by saving upfront and you will avoid loans and interest payments.
Next, make sure that there is some money left for investing so you will improve your situation for the long-term. Try to find a balance between mid- and long-term goals.
Lastly, all the money that is left, can be spent on whatever you want. Again, you need to find a balance between the here and now and the future. But with this system, you have a nice life, all the stuff you really want to have and a bright future.
5. Build an emergency fund
This goes hand in hand with consciously spending. You don’t want to take a loan just because you’ve never planned for an unexpected car repair. So you need some money to cover those unexpected events that will happen in your life. For your 20s it’s great to save just $1,000 or a little more than that. This depends heavily on your situation. Try to increase this position as soon as possible to roughly 3-6 months of your expenses.
Believe me, you will sleep a lot better when you know that if an emergency occurs you can handle that. Even if you lose your job, you can continue to live like before for a certain time. If you take some money out, put it back during the next months. This is definitely one of the most fundamental pieces of advice a personal finance blogger can provide. It’s great to have a positive mindset but your finance shouldn’t build upon that.
6. Start investing in your 20s
I’ve covered investing a little before. There are many reasons why you want to start investing right now. I can give you one simple example.
Case A: You start investing at the age of 25 until you become 35. 10 years. We assume that you will receive the market average annual return of 8% (it will not always be the same but we take this for demonstration purposes). You buy stocks for $100 every month.
You pay $12,000 for your investments. At the age of 65, you have $201,398.63!
Case B: You start investing at the age of 35 until you become 65. 30 years. Again, we assume that the market will return the annual average of 8%. Also, you buy stocks for $100 every month.
You pay $36,000 for your investments. At the age of 65, you have $150,029.52!
That’s the power of compounding! You paid $24,000 less in case A than in case B but you still have over $50,000 more at the age of 65. Just by starting 10 years earlier, you saved more than $74,000!
Note: Again, in case A you haven’t invested your money 10 years longer! You have stopped after 10 years and at the end, you are at a better spot than after 30 years in case B. Just starting earlier helps a lot! If you would continue your monthly $100 payment and continue to invest until you are 65, you would have $351,428.12! I think you should start early and don’t stop after 10 years!
7. Find alternative ways to generate money
Okay, if you have started investing in the stock market and you have a day job, you already have two income streams. However, as soon as you lose your day job or can’t continue to work for any reason, you will have a problem. Side hustles are ways to earn money besides your day job. There are active and passive income streams. Active means, it’s like your job. You trade time for money. An example would be babysitting or dog walking.
With passive income, you do the work upfront and get paid afterward. So passive doesn’t mean you don’t have to work for it, but you normally have most of the work before and then you can earn money even when you sleep. Investing is a great example. You can buy stocks or get paid for renting out a real estate property. In those cases, your money works for you. Another example would be an Amazon FBA business or an eBook.
I have created a post specifically covering resources if you want to build a side hustle. The more income streams you have, the less you are dependent on your day job. That’s the accelerator to become rich sooner.
8. Check out what insurances you will need
It’s sad to think about all the bad stuff that can happen in your life. But it’s part of becoming an adult. You can’t just shut your eyes in front of it. Bad things do happen and they don’t make an appointment before they do. Insurances are a great way to cover emergencies that can’t be covered by your emergency fund.
I have an health insurance (I need to have one in Germany) and you should probably have one, too. Otherwise, a hospital stay could be even worse than it is already. This is one thing where we have just a very small impact on. Make sure, that an sickness doesn’t destroy your whole life/financial plan.
There are other insurances that could be a good idea. A life insurance to secure your family in case of your death, a disability insurance if you can’t continue to work or a household insurance to protect your home against damage. I am far from being an expert here, but again it’s part of your adulthood to tackle bad things and you want to ask an insurance adviser what you will need. In the end, it’s your decision and it depends on what your life is like.
Just make sure, that nothing unplanned can ruin your finances.
These are the 8 goals I want to achieve in my 20s and I think everyone else should. What do you think are the goals you should achieve in your 20s? Or what do you wish you achieved in your 20s if you are older than that? Let me know by writing a comment in the comment section!