Maria Cristina Pre
Whatever your age, you can be rich as long as you make the right financial decisions.
In your early 20s, you probably just started working on your first job and finally earning your own money. At this age, you learn first-hand what living from paycheck to paycheck means, and also find creative ways to stretch your paltry income until the next payday.
While you may not yet have your finances in order then, your early 20s is the best time to develop the habit of saving and investing.
Here are 7 bits of money advice I wish I’d known in my early 20s:
1. Set financial goals
You hear it all the time: “What gets measured gets done.”
Learn how to set financial goals that are SMART: Specific, Measurable, Attainable, Relevant, Time-bound. By setting financial goals and measuring performance against those goals, you make yourself accountable for your own success or failure. Aspire to be financially independent at a young age.
Here are some examples of SMART financial goals:
- Track all income and expenses in a spreadsheet starting January 1st.
- Earn an extra income of PHP10,000 monthly by doing part-time social media management jobs
- Save and invest PHP5,000 monthly in the next 5 years in an investment option that gives 8% annual return.
2. Don’t rely on a single source of income
Learn different ways to earn so you’ll always have money coming in. That way, you’ll be assured to have money to spend for your needs, at least.
Make extra cash by offering your talent, skill, knowledge, or even your hobby to others. You can even earn while working from home.
3. Create and stick to a spending plan
Know how to manage your cash flow effectively.
A spending plan helps you keep track of expenses. List down all your monthly essential expenses such as food, rent, utility bills, etc. Experts recommend that your expenses for necessities do not exceed 60% of your monthly income so you’ll have money left for other expenses.
Allot different percentages of your income for savings and other expenses. Budget according to your priorities.
4. Start saving money today
Start saving today to build a strong financial foundation for your future.
Target to save 20% of every paycheck. If you can’t afford 20%, start as low as 5% then gradually increase it.
- Save to build your safety net fund
A natural calamity, hospitalization, job loss, or another event where you immediately need a huge amount of money are financial disasters that can happen to anyone. That’s why you need to set aside a part of your monthly income for an emergency fund. Save 3 to 6 months’ worth of your expenses for this.
You also need to save up for your health insurance and life insurance. These great financial tools ensure that your loved ones do not suffer unnecessary financial burden in case of your serious illness or untimely death.
- Save for your life goals fund
Do you want help getting started in your big life goals like starting a business or saving up for retirement? Setup a life goal fund for that.
- Save for your leisure fund
Use your leisure fund for your travels, hobbies, and other recreational activities.
5. Start investing as early as you can
Your 20s is the best time to start investing. This is how you build your wealth. You have more years to grow your money and enough time to recover if you make mistakes, so don’t be afraid to take risks.
Try to start investing in Unit Investment Trust Fund (UITF), mutual funds, or directly in the stock market. Make regular, periodic investments. For example, PHP2,000 monthly to a mutual fund.
Make sure you know what you’re investing in. Just because a friend or relative recommended it doesn’t mean it’s a good investment. Beware of get-rich-quick scams.
Remember, too, not to put all your eggs in one basket. Diversify your investments to lessen risk.
Also, invest in your own education. Successful people never stop learning.
6. Stay out of debt
Having too much debt is always bad. Avoid credit card debt. If you need a credit card to buy something (especially if it’s a non-essential item), you probably shouldn’t buy it. If you do use a credit card, it’s best to pay off your balance in full each month.
7. Be healthy
Being young, you probably take your health for granted. But know that eating junk food, smoking, and drinking excessively can cause serious problems in your later years, and can lead to a heavy financial burden. Take steps to maintain your good health always.
In summary, make sure you start doing these 7 smart money moves in your early 20s. Following these money advice will help you achieve financial security.
