Your 20s are a time of big changes in people’s lives. Starting a job, starting a family, sometimes buying your first house. This might be the decade with the most changes you will encounter ever! But beware of the multiple traps caused by an increased cashflow from a new job. There are some caveats but also some good lessons which can and should be learned before turning 30.
Here’s a list of 8 money lessons I learned in my 20s (sometimes the hard-way) and which are based on my personal experience, which I hope some other people will learn too while there’s still a lot of time to catch up on your mistakes.
Pay yourself first
The financial equation which we are taught from our childhood is spend less than what you earn. While this is true, quite often people miss the point and pay all their bills and recurring expenses and then whatever is left goes for savings. However, (in my mind) this is not a proper way to handle personal finance. It’s much better to pay yourself first before paying your bills and other expenses.
As soon as your paycheck hits your bank account, it should be automated to investments and savings accounts (or paying off debts). Automating this process in the first place has a huge advantage: you won’t be tempted to spend it, because you will not even know it was here in the first place!
Take advantage of the ultimate 20% return
Get rid of that balance (if you do have one) on your credit card. Always pay off your credit card in full! If you’re onto investing long-term, you’ll be glad to get a 7% return, while with a cash savings account it depends but usually you’ll get a rate from 0.5% to a meager 2.5% return (at best). But paying off your balance in full each month is a guaranteed 18-22% return.
Do not fall into the trap and do not overuse credit cards like crazy! That’s your best return ever. Just remember that there are good and bad debts, but credit card debt definitely falls into the bad one.
Side hustles can make a (huge) difference
Thinking of starting a side hustle? Or maybe you’ve already started? Great because this is key nowadays. In fact it seems like everyone wants to start (or has already started) a side hustle! I’ve managed to supplement my full-time salary by working overtime and picking up some odd jobs. Whether it be renting one extra room on AirBnB, or working just a few extra hours per week has provided me with thousands of dollars per year to spend on travel and entertainment — totally guilt-free.
There are so many ways that you could earn money online (or offline), just find something that you love or that pays well (or both would be even better!). Personally, I believe that the ultimate side hustle would be to start a blog, which allowed me to combine earning extra cash and doing something that I love — talking about personal finance.
Negotiating (almost) always pays off
If there’s one simple and easy thing I learned in my twenties, it’s that almost anything is negotiable in life. This might be the fact on electronics, phone or internet, but there are so many things which can also be negotiated such as cars, rent and even furniture. Just pick up the phone or try to talk to the seller and ask for a better price you have nothing to loose! Also remember to take advantage of free cashback portals, like Ebates (and get $10 when signing up with my link), or rewards website like Swagbucks, when shopping online.
Negotiating is also crucial when it comes to negotiating salaries. Just remember that to get your best shot, it’s easier when you have a competing offer in hand to get the best value.
Save for retirement early on
You’re never too late to the game when it comes to saving for your retirement. I started quite late saving for retirement as I graduated quite late (I was 25) and started working full-time a few weeks later. I chose to pay back my students loans early on, which meant that I nearly didn’t start saving for retirement until I was 29. I used the excuse that I wasn’t making enough money, however looking back I should definitely have done both to take advantage of compound interest!
With so many Robo-Advisor out there (if you have not already, check out Wealthsimple which is now available in the UK, as well as Canada and US), it’s even more easier than it was before to start saving early on, even without knowing a lot about investing. Just remember that you NEED to get started, as your future self will be much more grateful if you started early on (remember that compound interest is your ultimate friend)!
Keep on learning
You can’t and you won’t know everything there is to know about a specific topic at any single moment in your life. That’s simply impossible, because it’s a dynamic and perpetual process! As a matter of fact, your education is far from over after you leave a classroom for the last time. As outlined in my Goals For 2017, I’ve personally chosen to read more this year, especially about personal finance. I’ve just finished I Will Teach You To Be Rich by Ramit Sethi, and I must say that it’s definitely eye-opening.
Finding the time to learn new things that will help you in your career, as well as in your personal life, was something that I definitely wish I started earlier. Maybe you particularly enjoy a technical skill or maybe you’re more on the artistic side, who knows, maybe one day this specific skill will allow you to turn your side hustle into a full one!
Always plan for the worst
Aka meet your best friend the emergency fund! While it’s hard to imagine needing emergency funds when you’re young and just starting out, you never know what the future can bring. Whether it is for an unexpected medical bill not covered by your insurance plan, or in case your car suddenly breaks down. How do people plan on paying such bills without going into debt or starting to dip into their retirement funds if they’ve not started their emergency fund in the first place?
Building an emergency fund takes time and discipline and some sacrifices, but it can (and should) be done. Try to start contributing to an emergency fund that you keep in highly liquid funds for when the unexpected happens. I’ve chosen to stick mine in a High Interest Savings Account with Tangerine. Their high-interest savings and no-fee chequing accounts have been an integral part of helping me build long-term wealth. If you don’t have an account with Tangerine, you can set one up using my Orange Key (48902575S1) and receive a $50 bonus. Free money is always better!
Budgeting is useful
Some people start organizing their finances but often end up giving up on it because they are having trouble sticking to their initial budget. If that sounds familiar you should definitely use a budgeting app. This can help you organize your finances easily and can also help you automate it. This is the most effective way to make sure you’re not spending more than you’re earning. You just have to find a proper way to manage your own budget and not specifically do like others, as everyone manage their personal finance differently!
I personally use Mint to track my expenses. There’s also an awesome tool (Personal Capital) that a lot of my friends and readers love using, if you want to see all your investments and retirement accounts in one secure and convenient place, but it’s only available in the US (at the moment!).
Set yourself some financial goals
Goals-based investing is something which kind of rules my life now (I mean the goals part not specifically the goals-based investing!). As a famous quote says, “If you do not change direction, you may end up where you’re heading“. Basically what this means is that it’s a good idea to plan where you’d like to be in the future and make sure that’s the path you’re on.Setting small goals will almost always lead to achieving bigger ones!Click To Tweet
Simple goals like “I want to save for the next holidays” or more detailed ones like “I’d like to save some money for an upcoming house down payment” all begin with awareness and taking the first small steps. Just start with a few goals, as you can always change them later! If you live in Canada feel free to try Mylo, it’s the perfect way to automate and achieve these small first steps at the same time.
So this was my own list of lessons I learned during my 20s, which I hope others will learn before their 30s. Learning is key to continual growth, and while making mistakes happen, avoiding doing the same mistakes twice is something you should understand early on!
Ultimately, you are still young and you have plenty time to make mistakes and recover. But you’ll be far better off in life if you get off to a good start now.
Your 20s are such an exciting time, which is all about career opportunities, building relationships and embracing financial responsibilities. The sooner you master all those things, the closer you are to reaching financial independence.