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Our twenties are supposed to be the most happening decade of our lives. We’re encouraged to make the most of every day: Dance, drink, shop and travel as much and as often as we can. This ‘YOLO’ mindset gives us a feeling of invincibility, but it doesn’t last for long. Slowly but surely, a sense of reality starts kicking in.
The responsibilities of looking after our aging parents, starting a family, buying a house, getting insurance and building a retirement fund weigh us down. They make us realize how myopic we were in our 20s, and regret not knowing better. If you’re in your twenties, this is a wake-up call. It’s not too late. Inculcate these financial habits and your future self will thank you:
Live Below Your Means
Stop trying to please others by spending more than you earn. Even if you can afford an expensive lifestyle, ask yourself why do you need one? No one, at this age, will judge you for living modestly. In fact, you’re expected to spend these years working your way up to wealth. So why take that pressure already? Save as much of your income as you can and put it to good use - and by good use we don’t mean shopping and eating out, but multiplying it by making bold investment moves. Remember, in your twenties, you have nothing to lose and everything to gain!
Build A Good Credit Score
Ten years down the line, your test scores in college won’t matter as much as your credit score. Most 20-somethings take this lightly. A good credit score will help you get a loan faster and at a lower interest rate in the future. And at some point in your life, unless you’ve inherited a lot of wealth, you will have to take a loan - either for education or starting a business. So start paying your credit card bills on time and in full. And don’t use more than 30% of your credit card limit in a month.
Don’t Buy Liabilities
As discussed above, everyone takes a loan at some point of their life. Taking a loan isn’t a bad thing, as most people think it to be. It all depends on how you utilize the borrowed sum of money. If you use it to buy liabilities like a house, cars or clothes, you will land up in a debt trap. If you use it to buy assets like equities and stocks, or for starting a business, your money can multiply even as you sleep and leave you with more than enough to pay your creditors back.
Invest In Assets
Sorry to burst your bubble, but your monthly salary is giving you a false sense of financial security. The truth is, as thought leader Naval Ravikant succinctly puts it - No one gets rich renting out their time. If you’re paid in direct proportion to the number of hours you put in to work, you will live paycheque to paycheque for the rest of your life. The only way to get out of this rut is to invest in assets - mutual funds, stocks, derivatives, debentures and bonds, which give you exponential results all for taking some risk.
Set Up An Emergency Fund
The world is your oyster in your twenties. But as you grow older, life will shake you out of this delusion, bringing you face to face with the realities of being human: Bad things happen to everyone, just in varying degrees. Things like getting diagnosed with a illness, divorce and the death of loved ones are more common than we think, and if we’re not financially prepared to deal with them, we find ourselves stuck in a tight spot. Set aside a small amount of your earnings every month to build an emergency fund now, and keep your future self covered.
Get Insured
Youth can make us blind to the reality of life, which is why 20-year-olds don’t usually think about preparing for financial emergencies. So when an unforeseen circumstance crops up, they’re left scrambling for shelter. To avoid this, get yourself an insurance cover of 25 times your yearly salary. The good thing about doing this in your twenties is that you can pay premiums as low as INR 10,000 a year.
Also read: 5 Books That Can Help Women Be More Financially Empowered
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