Top Tips for those in their 20s

20! It’s so young, I hear you say. Does a 20-year-old really need a financial planner? The short answer is: You don’t need a financial planner YET but you definitely need a financial plan.

Here are some tips to get you started:

1. Save more, and do it sooner

The way real wealth is built in the world is with discipline and effort. Maybe you’ve inherited some money or picked up some hot stock options, but the real key is putting away money. Just saving, that is, putting chunks of money away each month, gives you the ultimate in investing power: Steady compounding over long periods of time. Consider this: If you start saving just $1,200 a year—a mere $100 per month—starting at age 25, by age 65 you’ll have about $185,700 (assuming a 6% return).

But say you delay by 10 years, and start saving $1,200 a year from ages 35 through 65, earning the same 6% return. You’ll end up with only $94,800, nearly 50% less!

2. Budget

Budgeting is not rocket science.  As a rough rule of thumb, look to save between 5-20% of your income each month, towards your medium/long term goals.    There are also lots of apps to help you track expenditure.  Within your budgets, allow yourself little treats so it’s not all about tomorrow!

3. Develop a long-term goal

Retire at 40? Totally possible. Save $1 million dollars? Piece of cake. You can do anything so long as you set a serious goal and find a plan that gets you there. Periodic, automated saving is a good way to start (see 1!)

4. Get into the markets

Remember, you’re young! You have time for false starts and poorly considered plans. Don’t let a small mistake be the reason you give up on investing. If you step back from risk and stay out of the markets for a decade, you blow a chance to double your money with relatively little effort.

Investing is not rocket science, no matter how scary it might seem. It really is just setting aside money and prudently putting it at risk over long periods of time. In your 20s, the only big mistake you can make in that game is to not play at all.

5. Pay off student debt

Student loan debt in particular is often blamed for preventing young people from buying homes and growing their wealth, so the sooner you can start living debt-free, the better.

If you have debt, it’s usually in your best interest to pay more than your minimum payment, thereby reducing the length of your loan and the amount you pay in interest.

6. Enroll in a pension

First and foremost, contribute to your pension if your employer offers one. Also, get in the habit of upping your contribution on a consistent basis — just 0.5% of an increase can make a difference — either once a year or every time you get a raise. Check online to see if you can set up auto-increase which will automatically increase your contributions every year.

7. Get the insurance you need

As tempting as it may be to save a bit of money each year by foregoing insurance, that’s one of the worst money mistakes you can make. Auto, health, and disability insurance are three other must-haves. Don’t get caught out in the long-run – if something happens and you don’t have insurance, you’ll be up for a far larger expenditure.

8. Create an emergency fund

While it’s easy to scoff at the possibility of your car breaking down or a medical emergency, these are both valid scenarios that could quickly become expensive realities.

The amount of savings you need is highly personal, but a general rule is to have six months’ worth of savings tucked away. Of course, you may need more or less depending on your situation.

9. Make quality purchases

Invest in things that have value. While it may be hard to part with your cash, some things are worth spending money on, such as a nice interview suit or new experiences. Quality purchases don’t necessarily mean big-ticket items; there are several everyday items to invest in that can pay for themselves in a short amount of time, such as a commuter bike or coffee maker.

10. Build credit

The key here is to do so without racking up a lot of debt. Having a credit card or two is okay, but don’t overdo it and try to pay them off in full to avoid interest. And make sure you always make your payments on time, as this is the easiest way to build credit. Do not charge more than you can afford to pay back. You will lose money as the interest accumulates and worse, you may end up lowering your credit score instead of raising it!

Create a plan

Put all of these tips into a plan – and follow it.

About Expat Financial

Expat Financial is a team of highly experienced Hong Kong based Financial Advisors. As Expats ourselves we understand the challenges of living and working in a foreign country. We use our Expat experience along with our extensive financial expertise to help you maximise the benefits of working and living offshore.

Regardless of whether you’re a financial novice or a seasoned investor we specialise in helping you to achieve your goals.

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