For most people in their twenties, the idea of saving and investing seems like a lifetime away; most people don’t start thinking about saving or investing for their financial future until they are well into their 30s and often later. It is important to realize that the choices you make in your twenties play a critical role in your future financial security. Here are some tips that you should consider in your twenties that will help you to build a solid foundation for your financial future.
Focus on your career. In your twenties, getting established in your career and earning a regular income should be one of your priorities. Don’t be discouraged if your first job isn’t your dream job. If you are fortunate enough to get a job soon after graduation just be the best that you can be in your current job until the right opportunity presents.
This is the time to continue to invest in yourself, to acquire and develop those skills that will enhance your career and boost your earnings. As far as possible attend seminars, read widely, enrole in classes that can add value. Learn a new skill. The skills you gain at this time will be invaluable in later life. You might have exciting ideas about becoming an entrepreneur and getting rich quickly, but the discipline of earning regular income from a job and sticking with it for a time, will a go a long way to prepare you for lasting financial security.
Take deliberate steps to improve your understanding of money matters. There is a plethora of information in the media through books, magazines, newspapers, seminars and on the internet that will help guide you as you make decisions.
The first step in financial planning is to identify your goals. Your short-term goals (under five years) might include getting married, buying your first car, further your education or taking a vacation. Your medium term goals (five to ten years) may be to get a mortgage, whilst your long-term goals may be to plan for your retirement.
Live within your means. It is very tempting when you first start earning, and particularly where you might have few financial responsibilities, for you to spend excessively on clothes, accessories, mobile phone bills and so on. All these can be a serious drain on your finances at this stage if not carefully considered. Look over your income and monthly expenses. Create a budget so that you can see exactly where your money is going and make adjustments where necessary. It is not how much you earn that matters, it is how much you keep.
Be cautious about borrowing; it is better to borrow for things that have lasting value such as a home or an education rather than for consumables such as gadgets and clothes. Give yourself a deadline by which time you would have paid off or at least reduced the most expensive debt, usually credit card debt. Pay your bills on time so that you can build a solid credit history from now. This will be important when you need to borrow more significantly in the future.
Once your debt is under control, you can begin to save. Even if money is tight, once you get paid, try to have at least 10 percent of your monthly salary immediately transferred to savings or to a mutual fund account through a direct debit.
It is easier to develop a savings habit now than later on in life. Many people will say that they can’t save because there is nothing left at the end of the month. Make savings a priority and automate it. Start small; you will be surprised how quickly the funds build up.
Start investing to meet your goals. Historically, the stock market has out-performed other types of investments over the long term, but it comes with some risk. If you don’t own any stock, the market continues to present an opportunity to purchase attractive stocks at decent prices. If you don’t have the time or expertise to select individual stocks and you have only a small sum of money to invest each month, a stock market mutual fund may be the ideal investment to meet your medium and long-term goals.
It may seem odd to talk about retirement when you have barely got started with real life and work; naturally you are more concerned about your job and not the end of your working life still decades away. As soon as you start work, you will be eligible to contribute to a Retirement Savings Account (“RSA”) through your Pension Fund Administrator (“PFA”). You have an edge if you start to invest regularly for retirement from now, and you have a better chance of building a significant nest egg with relatively little effort.
Accommodation is often a challenge. Even if you are fortunate enough to have a free roof over your head provided by parents or other relatives and friends, you can contribute to family expenses such as utility bills. You can also set aside some of the money that you would have had to use for rent to build up equity towards getting a mortgage so that you can eventually own your own home.
Earn your independence. It is the desire of every parent to ease the path for their children and most children will embrace this gladly. Whilst it’s nice to get a lot of help from your parents, don’t let it get in the way of your attaining financial success of your own. Earn your independence and start to take charge of your financial life. Your parents provided you with an education; now you are no longer a child; your finances are your responsibility.
The choices you make now, will largely determine how your life will turn out to be in the future. Your relationships are of great importance and it is important to consider this with a sense of purpose. The decision to marry will be one of the most important decisions you ever make. Don’t take this lightly. Are you dating casually or dating with the intention of marriage. As with the rest of your serious decisions and plans, have clear criteria and standards for considering a future life partner. Does the person you are interested in have the same or at least similar life goals; career, family, finances, children, raising and educating children, etc. This will save you both much stress and strain later on. As hard as it may seem, try not to be swayed by fluffy sentiment and emotion.
The key to building a solid foundation for future financial security is to budget, control your debt and to save and invest regularly. In your 20s, you have the luxury of time. Even where you make mistakes, there is time to recover as your investments earnings grow over several years; this means that if you are consistent and disciplined, your savings will be able to grow significantly. Remember too, that this is the time to travel, pick up new skills, and have new experiences before you have larger responsibilities to take care of. Time is on your side; so do enjoy it.
with NIMI AKINKUGBE
Nimi Akinkugbe is a banker with passion for encouraging financial independence. She has through articles, speaking engagements, television and radio appearances, offered frank and practical insights to creating a greater awareness and understanding of personal finance and wealth management issues.
