The twenties are a time of hustle for most of us. The constant struggle between adulting and getting over the kid inside is tough. In our twenties, we will find almost everyone struggling with their career decisions, trying multiple things, switching from one job to another, hustling to find their own place in the world and in the meantime learning to manage their own finances.
Twenties are not as honeymoon-ey as we wanted it to be, so we are here to help you get through it with ease. Here are 3 smart financial decision you should take in your twenties –
1. Start Investing Today –
Once you are free from any liabilities, especially high-interest debts and an emergency fund, it is time for you to build an investment portfolio. The sooner you start, the better you yield. Before starting you must first define the purpose of your investment. Then bifurcate them into Short-term and Long-term goals. You can talk to your parents or consult Shree Balaji Investment Solutions as they are an experienced source to guide you with your investments.
For a safer investing journey, try to diversify your investment profile as much as you can. It largely reduces any chances of losing your money and strengthens your risk appetite. As a no nothing investor, you should always consider low to intermediate risk profile for investment. My favourite part of investing is The Compounding Returns! The power of compounding is such that it can yield you more than the amount you had invested over time. Nothing with money happens overnight.
Your choices in your twenties define your financial status in your life later. In a world where consumerism is a norm, it is harder to stay below the means but your choices can make you either financially sound or broke in the future. Haven’t we all heard about the ‘Millionaire Next Door’ after all? People can live a frugal lifestyle and have huge savings on unremarkable salaries or earn a million to spend every cent.
2. Learn the Golden Rule of Financial Management –
Yes, you read that right! The 50/30/20 Rule. The Golden Rule is something we weren’t really taught in our colleges but it is the Mantra of Financial Management. The first and the foremost thing you must learn in your twenties is prioritizing your expenses. Surely, shopping or a new car or a new phone looks tempting but you must plan it out well. You should bifurcate your income into three parts, namely –
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Needs –
Your needs are precisely your food, transportation, bills, or the ridiculously high rent in your beloved city. The needs can be acquainted with 50% of your income, more or less. You can always pull some expenses from the want bucket to strike a balance.
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Wants –
Your wants can be your leisure, subscriptions, occasionally hanging out with your friends, etc. The wants can be acquainted with 30% of your income.
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The Future You –
This is for who you want to be in the future or where you see yourself in the coming future. The last 20% of your income hence can be used for paying off your debts, saving and for the good, investing. Begin with any amount you are comfortable with and gradually increase it by a few percents.
50-30-20 is one of the best financial management techniques you can learn. Needless to mention, a little level up and level down can be well adjusted. The fundamental objective of this rule is to learn to budget. Budgeting does not necessarily mean budget tracking and crunching all the time. However, don’t forget to run through your expenses once in a while to make sure you are on track.
3. Save For Emergencies –
This one is really important! While more of us in our twenties prefer living like a free bird and not restricting our expenses, you might want to think of an emergency fund right away. Unless you are incredibly fortunate, it is not a question ‘IF’ you will ever need an emergency fund. Emergencies can be of any sort, maybe a financial emergency or a medical emergency. So you must save 3 to 6 months of your income in the emergency fund as a backup.
An emergency fund can save you from any unexpected liability or even a recession. Start saving for it as soon as you clear your high-interest debt if any. Most importantly, try to keep your emergency fund in the most liquid portfolio like FD. Do not save it in any lock-in mode as it may fail the purpose of an emergency fund. Keep in a safe and zero market risk mode so you can access it whenever you need it.
The twenties are a time you switch from ‘Decision Feeding’ to ‘Decision Making’ and the transition can be difficult. But if only you are dedicated to splurge on your necessities and save as much as you can and invest, you will have a far better chance of hitting the goals. So will you save, or will you spend? Just like most of the factors on this list, the choice is yours!