In Your 20s? Master These 5 Financial Rules Early

Well, entering the 20s is exciting! 

The rush of adrenaline brings a sense of elation as you approach the finish line of your degree or prepare to step into your first job and exciting new work opportunities. There are countless beginnings ahead, all contributing to laying a strong foundation for your life!

While you’re eager to enjoy life, meet new friends, and embrace exciting adventures, there can be challenges along the way, such as financial responsibilities, finding your place, and learning to navigate it all. Your twenties play a vital role in shaping your journey for your thirties, forties, fifties, and beyond, including retirement. This decade sets the stage for important life choices, such as your career, marriage, and starting a family. The way you lay down your financial groundwork during this time can have a lasting impact on everything you pursue later in life.

Whether you’re already earning money or are on the brink of receiving your very first paycheck, here are five things to keep in mind as you work towards building a successful life:

Start Saving (and Investing) Early

The early bird catches the worm; early investors reap the best rewards. 

You just received your first paycheck – how exciting! You went to the club and treated yourself, but what comes next?

The next step is to explore suitable investment options for you. If you’re starting to dip your toes into investing, it’s a good idea to begin with a small amount. Before you know it, your 55-year-old self will be thanking you! In your twenties, you have the incredible opportunity to enjoy life, but guess what? You also have the best chance of earning compound interest. For instance, if you invest £200 every month starting at 22, by reaching 55, that could grow into a substantial sum, assuming an average annual return of 7%.

So, spend wisely! Invest in your youth while also considering your future, whether for retirement, a mortgage, or a car. It can be anything you’ve dreamed of, and making investments will genuinely pay off!

How to Save Money? 

Saving money can be tricky, but it’s not that tough. You can seek the help of portfolio managers or finance experts to learn about the different types of savings plans. You can also invest in bank deposits, stock markets, provident funds, or any other retirement plans that suit your needs. 

If you’re finding that difficult, why not try the old-school way? You could get a classic piggy bank or even those fun-saving boxes with targets to make the process enjoyable! 

Live Below Your Means — Not Just Within Them

Sounds absurd, right? You will be tempted to upgrade your lifestyle as soon as you start earning. However, understand that spending slightly less than you earn is the real power, allowing you to create the freedom fund. It’s not just a freedom fund; it’s a way to cultivate lifelong habits like saving and resisting lifestyle inflation. This approach will truly empower you with long-term financial confidence!

But how can one live within one’s means?

Just like in your college days! We’ve all been there and done that. It’s not just about being frugal and living on 10 pounds a week; it’s about making wise financial choices. For instance, your rent shouldn’t exceed two months’ worth of income, your phone doesn’t need to be in instalments, and you should aim to save at least 20% of your earnings. 

Begin by tracking your spending to identify unnecessary costs and distinguish between your “needs” and “wants.” This way, you can prioritise what truly matters while saving money for the future.

Living Below Your Means = Living Intentionally

The possibilities are limitless; you only need to identify the difference between splurging money and spending money. Living below your means isn’t about deprivation; it’s about making intentional, thoughtful financial choices. Remember, you’re setting yourself up for future stability, and those little sacrifices today will result in long-term rewards tomorrow. 

Build an Emergency Fund

Life happens — and it’s often expensive. 

Whether you’ve just started working or are already earning a stable income, it’s important to begin building your emergency fund. You don’t need to collect £50000-60000; instead, aim to keep three to six months’ worth of essential expenses in an easily accessible savings account. Analyse your monthly payments, such as rent, groceries, medical bills, etc, and calculate a rough estimate you will require to survive for 5-6 months. 

Why is an Emergency Fund Required?

This fund is your safety net when unexpected costs arise, from car repairs to job loss. Often, it involves more than mere chaos; situations such as global trade wars, worldwide recessions, and pandemics have certainly taught us all that life’s uncertainties extend beyond just bounced EMIS. 

But the question is, how to build an emergency fund?

Well, the answer is to start small by keeping a weekly £50-100 aside. It’s easy and doesn’t hinder your budget. Once you are comfortable with it, begin with an automatic transfer from your accounts. Slowly and systematically increase the amount you set aside. Once you reach your goal, invest the money in safe yet liquid assets, or you can simply put it in a bank account with a higher interest rate.  

Protip: Keep a separate account for emergency funds to avoid the temptation to use the money for luxuries or when you run out of funds during weekend plans.

Understand Debt Before You Use It

Using debt wisely can accelerate your life, but one wrong move can bury you under a pile of debt! Understand the basics, such as how interest rates work, what monthly payments are, the tenure, and the penalties for delayed payments, as credit card interest, buy-now-pay-later schemes, and student loans can easily turn into a never-ending cycle. To achieve financial stability, understanding the terms of any financial agreement or loan is crucial. Comprehending your commitments enables informed choices that positively impact your financial future. Additionally, pay more than the minimum on debts.

Don’t Underestimate the Power of Your Credit Score

Your credit score can significantly impact your financial future. A strong credit score will assist you in securing favourable loan terms for purchasing a home, car, or even starting a business. If you’re in your 20s, now is the ideal time to start building and maintaining good credit.

Learn to Budget — and Stick to It

That’s the simplest advice you’ve ever received! Every adult urges you to save money and invest in options that offer long-term returns, which is the ultimate objective. However, few mention that in your early twenties, when you have fewer responsibilities, you can afford to take some risks. Investing in stocks might lead to losses, but it also comes with a greater potential for gains. 

Keep track of your income and expenses, even if it’s merely through a basic app or spreadsheet. Budgeting allows you to maintain control, identify spending patterns, and prevent end-of-month panic. Consider the 50/30/20 rule: 50% for needs, 30% for wants, and 20% for savings or debt repayments. 

Have trouble sticking to your budget?

Well, that’s understandable!

Initially, you may feel restricted, burdened, or even suffocated by constantly living under limitations. However, with time, you will get used to it! For beginners, start with small changes; adjust the rules to 60/20/20 or 50/40/10 – whatever works for you is the best!

Bonus Tip 

Invest in Yourself — The Smartest Investment You’ll Ever Make

Now that you’re earning, it’s easy to concentrate solely on spending and saving. However, remember one of the most valuable investments you can make: your personal growth.

In your twenties, you possess time, energy, and flexibility: the perfect ingredients for self-improvement. This is the ideal moment to enrol in that online course you’ve been considering, learn a new language, create a portfolio, or explore a side hustle that excites you. Whether it’s graphic design, coding, content creation, or business skills, every new skill elevates your value in the job market.

It’s not just about enhancing your CV; it’s about building your confidence, expanding your career possibilities, and unlocking new earning potential in the future. Consider this: jobs will come and go, and industries will evolve, but your skills, your knowledge, and your mindset are what remain with you forever. So, don’t hesitate: enrol in that course, pick up that book, launch that project.

You’re not merely spending; you’re sowing seeds that will flourish for decades.