Key money lessons to start in your 20s

Your 20s are the most hectic years you will ever experience in your life.  Nobody is really prepared to handle the emotional roller coaster with personal dreams and responsibilities.

I know because I was once a in my 20s and I remember how I kept thinking there is something wrong with me. That feeling never goes away until you get into your late 20s. And on the other hand your have the responsibility of trying to figure out your career while pursuing a personal life. This is a lot.
I think financial education can help. But changing ingrained behaviour is really challenging.

Despite a long list of mistakes, one of my smarter decisions was to invest and save and in my 20s. At age 21 someone convinced me to get myself an RA and Unit Trusts. I later graduated to ETFs and buying individual stocks. The individual stock buying exercise was costly but I quickly learned by reading a lot and asking questions. Making an effort to save in my 20s created a world of opportunity for me.

This taught a very valuable lesson: life is better when you live intentionally with your money and otherwise.

Your twenties are important because that's when a whole lot of you build the foundation for your relationship with money. When you see older people getting it wrong financially it's because they started their bad financial habits in their twenties. On the flip side, the people that end up doing well later on in life had a good foundation to start off on, and it carried on with them for decades.

Blogging about my finances and has had a lot to do with me picking up these best financial habits. As I’ve researched and written about these things, I’ve also tested many of them myself to help me get my finances in order.

With so many new and exciting things going on in your 20s, it’s easy to ignore your finances. And that could lead to big mistakes – unless you have some tricks up your. So, as you undertake this amazing journey of your life, here's what you need to know about personal finance management and how to establish good financial habits.

Don’t be like the child who eats all his treats in one go and lands up with a belly ache… and no treats. Although it doesn’t come naturally, it’s important to think long term, especially in our climate of ‘instant everything’. To make it simpler, set financial goals for the next 6 months, the next year, and the next five or even ten years. The road to wealth is paved with goals. Without financial goals, you have no direction. If you have no direction, it’s easy to spend money on things you’ll regret later. But if you’re saving for a house or to buy a car, your goal will keep you focused, making it easier to spend on what’s important and ignore the things that aren’t.

Money won't buy you happiness. Money will give you more options in life, but it won't buy your peace of mind. True wealth is about relationships, good health, and ongoing self-improvement. Contentment is an essential ingredient in this recipe. Without a content heart, you’ll catch yourself always chasing after what the world says is more, bigger, better. The world says success means more money, more fame or more power. Resist the temptation to live in fear, and to bury yourself with the burden of “what if?” You should handle your money well and try to gain as much as you are able, but this pursuit should not be all-consuming. Just like the game Monopoly, at the end of our lives, it all goes back in the box. We don’t take our houses, cars, or possessions with us. So don’t get caught up in making money that you forget to enjoy life, responsibly.

You deserve to spoil yourself, sometimes. Just remember, after the spoiling is done, the world of adult responsibility still awaits. So, why not rather find your balance between spending and saving early on? Put money into a savings account every payday – make it an automatic transfer if you can. You can look at it as paying yourself, to secure your future. The earlier you start this, the easier it becomes. You don’t want fun to interfere with your ability to pay important bills. However, setting aside funds for recreation or entertainment each month provides the mental release you need and you avoid depriving yourself, which could result in overspending later.

When you start working, someone is going to knock on your door and offer you a credit card. The temptation is extreme, especially when companies are what they've termed good rates for the first 12 months or cashback on your purchases. If you’re not careful, credit cards can land you in a deep hole of debt that’s hard to climb out of. Choose one credit card that offers good benefits like a low interest rate, and stick to that. If you’re using your credit card responsibly, one is all you should need in your twenties.  Otherwise you will spend your 30s paying for your 20s—and your future self will hate you for it.

Contributing more to your retirement fund means you pay less tax annually. You are allowed to contribute 27,5% of your taxable income (to an annual maximum of R350 000) to your pension, provident or retirement annuity fund. A well-researched rule of thumb is that a retirement income of 75% of your final salary just before you retire will allow you to live comfortably during retirement. Saving towards retirement can pay off in the short term – in the form of a tax deduction – as well as in the long term. Withdrawing your retirement benefit in cash could cost you in tax. Rather consider leaving your money for the long run because you will benefit from compound interest. Compound interest is important to you because it can turn just a small investment today into big money over the course of a lifetime.

What would you do if you lost your job? Would you be able to pay your bills? There are ways to make sure that you never have to suffer financially, should you lose your job. The answer is multiple incomes. Relying purely on your employment income is a thing of the past. We live in a world filled with income opportunities. All you have to do is pick one. Think outside the box, and continue to focus on increasing your earning potential every year. Freelance work can be anything from copywriting, proofreading, design, helping with tax returns, repairs… you name it. It can be very rewarding, but it is also not for the faint-hearted. One month you could be making a killing, and the next month… nothing. It is therefore important to be smart about how you use your freelance income.

Regardless of how much you earn, save every bit of your excess money. If you’ve got R50 left over each month after expenses, set aside as much as you can. That might involve spending less on weekends or taking the bus more often. But if you’ve got excess cash, put it towards your future. Just know that the more you stash and invest, the faster you’ll achieve financial independence. Also each time you get paid, set aside a certain amount or percentage of your salary and put it into a fund that’s only used in emergencies. Over time, you should be able to build a healthy rainy day fund that could make things easier if a crisis hits. 

It’s important to think about how much to save in your 20s. But you’ve got to take it a step further if you want to achieve economic success. In addition to setting aside as much as possible, use your cash to create more income. Just like doctors and accountants spend years training before they can practice, you’ve got to hone your skills as an investor. That will require hundreds of hours of research, trial-and-error, discipline and even networking. The more you can maximize the return of each rand, the faster you will achieve your goal. No matter how much money you make, true wealth comes along only when you make the right decisions with your money.

Bad advice is worse than none at all… especially when it comes to your financial security. You definitely ought to consult someone about your investments and financial planning, so make sure you choose a reputable, reliable financial advisor. Remember that, as with anything else, it pays to shop around a bit before you make a decision. And it goes without saying that you should only be trusting someone who is a certified financial planner. 

As your life goals become more clear, having the room to figure things out will set you up in a better position.

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