So, you’ve just entered the working world.
For the first time in your life, you’re actually earning your own money. And for the first time, you actually have extra cash to buy stuff that you want.
But because many young working adults are dealing with money for the first time, they tend to make horrible financial decisions. And only to regret it later.
For 20-plus years, you’ve been living by with just the bare necessities, or how much you could afford with your pocket money.
But it’s different now.
After spending on food, and travel, and bills to pay, you find that you still have a large chunk of cash left over. You feel like a rich man. And then you make all these bad financial decisions.
Here are 8 financial tips you wish you knew when you were twenty:
1. Save Money Now
- The most important thing to do the very moment you start work is to set up an emergency fund. This would typically be around 6-24 months of your total living expenses.
- The more money in your emergency fund, the better. This ensures that you have food on your plate and a roof over your head in case you’re met with an unexpected loss in income (e.g. retrenchment) or increased expenses (e.g. a family member needs medical treatment).
- Always set aside a fixed amount or percentage of your salary and transfer it to a separate savings account BEFORE spending it on something else. Or better yet, arrange a standing order with your bank.
2. Start Investing ASAP
- When you’re young, the greatest advantage you have is your time. And the power of compounding is your greatest ally in your journey to financial freedom.
- Imagine that you start working at 25 years old. And every month, you invest $500 to an investment that gives you 10% annual returns.
- At the end of 25 years, you’d have $649,090. And after 26 years, you’d have $720,600. A mere one-year difference was able to boost your investment value by $71.510.
- And say you continue to invest until retirement. In your final year, you’ll earn over $270,000 in interest.
- So think of it this way. The cost of delaying your investment by one year is a quarter of a million dollars. If this doesn’t scare you into taking action, nothing will.
3. Pay Off All Your Debts Quickly
- If someone tries to sell you an investment product with a guaranteed 25% returns, you’d probably think that it’s a scam. But that’s exactly what credit card companies are charging you on outstanding payments.
- Incurring debts is one of the best way to use the power of compounding against you. Any debt you own will double in 3 years. And quadruple it in less than 6 years.
4. Splurge On Property, But Scrimp On Cars
- The value of property will almost always appreciate over time. But virtually all cars will depreciate the very second after you purchased it. And unless you own an antique Ferrari 250 Testa Rossa, the price of your car today will never be higher than it was yesterday.
5. Price Doesn’t Equal To Value
- The most expensive product doesn’t necessarily be the best. And the best isn’t necessarily the most expensive either. Price isn’t an accurate reflection of quality.
- Product owners and marketers have been known to unnecessarily inflate the price of something to give it the illusion of quality. And guess what, it works!
- Lastly, understand that you don’t have to get the best (especially if it means pushing your finances to the limit). Just get one that’s good enough and that does the job.
6. Protect Your Wealth
- To ensure that your hard-earned cash isn’t taken away from you, you need to learn how to protect it. And the best time to do it is now, because when you think you need it, it’s already too late.
- Always get insurance. If you’re travelling, get insurance. If you rent, get insurance. If you own a property, get insurance. And if you live, get insurance.
- But merely getting insurance isn’t enough. You need to protect yourself and your assets, because the best insurance is one you don’t have to use.
- Prevention is always better than the cure. Take care of your health. Make good financial judgement. And deal with any hazards immediately.
- Who says procrastination can’t be useful. Each time you’re buying something that isn’t a need (i.e. you won’t die or become homeless or lose a job tomorrow if you don’t do it now), stop and practice some procrastination.
- Wait for a few days before deciding if you really want something. And most of the time, you’ll find that you don’t actually want it as much.
- The larger the purchase, the longer you should wait.
8. Know Where Your Money is Going
- Do you find yourself wondering where had all your money gone to every month – when you find out that you have nothing left in your bank account? Then you need to start tracking your expenses.
- It’s important that during the tracking process, you don’t try to modify your spending habits too much. This will give you a more accurate picture of the things that are draining your money away.
- With awareness comes the power to change. And if you’re consciously tracking for a few weeks, you’ll find that you automatically start to catch yourself when you spend on unnecessary things.