A short while ago I asked my Instagram family to pick a topic of my next blogpost. The choice given was between ‘how to start investing’ and ‘10 financial things to sort out in your 20s’. The 10 things won, resulting in this blog post.
I am sad to say that I lived through my 20s already. However, I am also pleased to say that I lived through my 20s and learnt a lot. There are very many things, financial and other, which you might want to achieve before you enter the big 3-0, and this blogpost will focus on the 10 which I personally found to be important from financial standpoint.
- Start your career
I don’t mean just getting a job. If you are unsure what it is that you’ll want to do in your professional life long-term, 20s are a good time to do a little bit of job hopping and finding out. Job hopping, temping and generally being a little indecisive does carry a financial penalty if you are in typical employment thought, so it’s important that you go through this fairly early in life to avoid long term financial damage.
Many people will disagree with this approach on assumption that you should know what you want right away, be decisive about it and go straight for it. I don’t know if people with that opinion have ever been 19 and sheltered. Most 20-year-olds I’ve met don’t necessarily know what they really want yet. So, take it as your goal to figure out what it is that you want to be doing and get on with getting there before you are in your 30s and not up for starting something new.
If you are attempting to run your own business instead of going into employment, your 20s are also the time to give things a go – if you fail, it’s easier to fail when you are young and fearless.
Whichever path you choose, by the time your 20s are over, have a clear idea of what you are trying to do with your professional life as it will impact your finances more than anything else you do.
- Gather emergency savings
I was broke in my 20s. So much so that an unexpected bill could have rendered me homeless. It didn’t, but it could have. Don’t be living on the edge, the stress is not worth it. Save some cash for emergencies. I won’t tell you how much to save as it all depends on how much life costs where you are, but a good rule of thumb is to start with 1-month worth of expenses in your early twenties and end up with at least 6 months’ worth of expenses before you are out of your 20s.
- If you take out student loans, pay them off
I am saying this on assumption that your student loans do not run into hundreds of thousands in debt. But even if they do, don’t sit on them too long – the moment you start making any money is the moment you want to start getting rid of the education-related debt.
- Start a retirement account
For employees in the UK the good news is that every legitimate company offers a pension scheme, usually an independently run one, which you will contribute into unless you opt out. Don’t opt out – stashing away even the minimum amount of 2% of your pre-tax salary will not be something you feel when you get paid but will definitely be something you’ll see grow over the years. So no matter how tight your budget is, start a pension pot.
- Start an investment portfolio
No, I don’t mean buying rental properties left and right (although you can if you fancy doing so), but you can start a stocks & shares portfolio with very little money and if you do, the compound interest can be a thing of beauty. If I have any regrets from my 20s, by far the biggest one is not starting a stock market account earlier in life.
- Develop a habit of paying your bills on time
Not early, not late. Pay your bills exactly when they are due. This is not just a financial goal to hit – paying your bills exactly on time does two small things. Firstly, it keeps the collection agencies away from you, always. Secondly it ensures that you only part with your hard-earned money when it’s time, not before. I have a friend who used to pay all her bills in advance, including the council tax bill which in the UK can easily exceed £1,500 per year. I honestly would rather pay it monthly and let the rest of that £1,500 sit in my savings account making me even the smallest % return instead, right up to the point when I do have to pay that bill. Being right on time with your payments usually also builds up a small amount of goodwill with your providers.
- Move out of your parents’ place
Unless you are a full-time carer of your parents/family members OR culturally obliged to remain at home until you start your own family, you have no business sleeping in your parents’ spare room permanently. I mean it – your childhood bedroom is their spare room the moment you finish your education. So, don’t be that kid and unless you really need to be there, get your own place and show them that they brought you up to stand on your own two feet. Financially this might not make much sense if you are imagining just how much you could save on rent, but mentally being responsible for yourself is a push many of us really need to realise that we’re in charge of our lives.
Before you ask, I left home at 19. I didn’t move across the street, I moved to another country. With that I developed and nurtured new, much stronger relationship with my parents solely because I got to understand what it means to support yourself and run your own household.
- Develop a budget
I am placing this a little late in the list and the reason is that you would have heard every single financial guru mention a budget before. Create one and learn to direct your money early. You don’t need me to drum on about it anymore, you can just make one, trust me (and yourself).
- Buy a house OR at least save up for a down payment
This one is a controversial one. Average age of a first time home buyer in the UK is now 30. Average house price in the UK sits somewhere around £226,798. In London it was more like £472,230 according to uncle google. The fans of FIRE ‘movement’ often suggest that buying a home is not a good idea, but the truth is we all have to live somewhere and the rent just keeps going up. So if you are buying your property to fix your living costs, or because you are seeing it as an investment, or because everybody needs to live somewhere, save enough to purchase a property while you are still in your 20s. I bought my first place with a joke that it’s a birthday gift to myself for 27th birthday.
There is an important caveat here. If you are buying with an intention of ‘upgrading’ to a bigger property a couple of years down the line, hold your horses and buy the bigger place in 2 years. Moving home is exceptionally expensive and you don’t want to be doing that too often. In this scenario, save a bit more.
- Give some money away
Karma is a thing in my world. Fortunately, or unfortunately, what I give out is what I get back so for my own sake I give some money away sometimes. You should too. Whether it’s giving a sandwich to a homeless person (I give small punnets of fruit, they never expect that and always say thank you), buying your sister a coffee, donating to a random sick person’s medical crowdfunding page or putting some change down for your place of worship, make a habit of giving something to those who have fallen on times harder than your own. I am not saying give all your money away, but I am saying that if you find a way to give, the universe will find a way to say thank you. So make this a habit and a goal.
This closes my list of 10 things to sort out financially in your 20s.
I hope this was interesting to you and if you have your own goals which are not mentioned above, feel free to share them in the comments section.