Your twenties are an important time for learning a lot of life’s lessons. You’re not a teenager anymore, you’re suddenly an adult and expected to be able to manage all aspects of your life…by yourself. So what now? There are many things that I wish I knew earlier about money and how exactly to manage it. We’re *usually* not taught these lessons in school and if you happen to have parents who aren’t the best with their money, then you might not be either. There are several things that I wish I learnt sooner! Unfortunately, I had to learn the hard way.
Note – I live in Australia so sections of this may not apply in your country or may not make sense to your situation.
If you’re not happy, now is the most affordable time to change
Your twenties are a period of self-exploration. These are often the years that you discover yourself, what you like and what you want to do with your life. Your twenties is the time to take a risk, take a leap and don’t settle. Often in our twenties, we are single, living with friends or sometimes, still living with our family. Living with others definitely makes things cheaper and means you have a bit more freedom. Want to move out? Move to a different city? Try a new job? This is the time to try new things and work out what you want before you have a mortgage and/or a family to support. Or maybe you decide a mortgage and kids isn’t for you? Travel, start your own business, the options are endless. The point is, try things out while you don’t have *as many* financial commitments.
‘Budget’ is not a bad word
One of the first words you hear when you think about money is ‘budget’. For some reason, the word budget has long had bad connotations attached to it. I grew up in a low-income family. We lived in government subsidised housing and my family, at one stage, even went bankrupt. We were always on a budget and I always thought that budgets were only for ‘poor people’ like us. Eventually, I learnt that a budget is actually a smart tool that everyone should use to help keep tabs on their financial situation. A budget not only helps you keep track of what you’re actually earning, but it also helps you understand what you spend your money on. Many of us think we know how much we spend, but if you don’t actually track it, I bet that you’re not right. I spend far more on food than I guess each month, for example.
Credit cards aren’t worth it
Again, I’m not sure why this is, but I always thought that part of turning 18 was getting a nice, shiny new credit card. It was just ‘what you did’. Pretty much everyone I knew had one, but no one ever teaches you how to be responsible with them. The media and society don’t help as we’re always being told to spend, spend, spend. Credit cards were the ‘gateway drug’ for me in terms of getting into debt. Once I started spending on my card, I couldn’t stop and whenever my card was maxed I was magically given an increase. Coincidence, I think not. Bottom line: Don’t get a card just because you think you should or because everyone says it’s ‘normal’. You absolutely do not need one.
Savings will ‘save’ you
One of the reasons I got a credit card (and what many of us use as an excuse to justify having one) was that a credit card was just for ’emergency purposes’. Because of this reason I never had any savings. My thinking was that if I had an emergency I would just use my credit card. Unfortunately, it was usually maxed out which made it useless in an emergency. Instead, the better idea is to save a few thousand (around $2,000) for these emergency purposes. This amount is enough to get you out of most situations. It will get you a plane ticket, a tow truck, repair or replacement of your fridge or cover an unexpected bill.
After you’ve got this initial emergency fund sorted you can work towards creating a larger savings account to cover a few months of expenses. This way if you were to lose your job you will be covered. Just knowing that you have a chunk of money put away honestly relieves so much stress.
Buy your car in cash
Personal loans for a car, also not worth it. Nope, nope, nope. Although the thought of getting a shiny new car is exciting and you want something fancy, you absolutely do not, and should not, go into debt for a car! Cars depreciate in value rapidly, especially if you buy brand new! The minute you drive that car out of the showroom it loses a massive chunk of its value. Save the money and buy what you can afford. When you can afford to upgrade by paying in cash, then do so.
I fully acknowledge there will be some situations where you don’t have any choice but to get a new car (i.e. you can’t fit all your children in your current car).
Don’t spend more than you earn
It seems like common sense but many Australians currently spend more than they earn, with the excess usually on credit. My parents’ motto was always “if you can’t pay cash, don’t get it”. This applies not only to purchases but things like a car, a rental property etc. In terms of rentals make sure that you can afford the payment and aren’t leaving yourself short. Rent or the mortgage payment should be no more than 30% of your take-home pay.
In terms of those purchases, it’s very easy to be tempted by the various ‘buy now, pay later’ schemes but using these is just to catch you out. It’s so easy to overspend and rack up a massive list of things you now have to pay for without realising how much your payments will be or if you can realistically afford them.
Some spending money is necessary
When it comes to making a budget going down the extreme end and giving yourself no spending money is a recipe for disaster. Having no freedom at all will just make you want to rebel and spend. If you allow yourself some freedom in your budget then you’ll have no issues with overspending. The amount you set is up to you, just make sure you have all the bills covered first.
Like to spend your money on takeaway instead of cooking? I do! Have a passion for fashion and want to buy good quality clothes? You can do it – as long as you can afford it and budget for it!
‘Hustle’ isn’t always the goal
During my twenties, I worked two jobs. I had a full-time job Mon-Fri approx. 38 hours and then a casual job on the weekend of around 10-20 hours. I only did this while I was paying off debt and saving and it really helped me get going. I also recognised when it was time to give myself some time back and quit my casual job. Your twenties should be fun, so make time for yourself in a way that you enjoy.
If buying a house is a goal for you then maybe you commit to spending some time working extra hard before then relaxing and taking some time off. Or if building an empire is more your thing, maybe you work during the day at your regular job and build your empire at night. Your twenties are probably the most amount of flexible time you will have, so make the most of it. For some that may be head down working hard and saving hard for months, then taking a few months off for travel. Or maybe it’s about buying your house and renovating it. Or maybe you work a day job and build your entrepreneurial empire at night. You will never have as much flexibility in your life as you do in your twenties. Make the most of it.
What money lessons do you wish you knew in your early twenties?