10 Financial Commandments for Your 20s
“If you haven’t explored it yet, Kiplinger offers a fantastic section tailored for young adults known as “Starting Out”. They have recently highlighted a compilation of “10 Financial Commandments for Your 20s”.
At the age of 27, I have some knowledge in this domain. I aim to present their list and provide some reflections on how diligently I have adhered to their recommendations.”
1. Plan Ahead
“It is important to establish plans and objectives that encompass short-term (less than 5 years), medium-term (5-10 years), and long-term (20+ years) goals. Looking back, I regret not having done this earlier. I now have set goals, but only after making significant financial commitments such as purchasing a car and a house, which are the two largest financial decisions I have made. I would have been able to save a substantial amount of money by planning for these expenses well in advance.
Had I saved up for a larger down payment on my house, I could have secured a better interest rate on my mortgage. Even a down payment of $10,450 would have resulted in saving nearly $60 per month and over $22,000 in interest over the entire duration of my mortgage.”
2. Live within your means
Another one I ignored at my own expense. When I first got a job, I actually increased my credit card debt. Not an uncommon story, but its an expensive one.
The best time to get ahead is our early years…you don’t want to be burdened with debt from the beginning.
3. Make Savings a Habit
A swing and a miss! My money goes to pay off debt now, so I still don’t have any savings to speak of. But what I should have done – even before my first paycheck – is set up an automatic deposit from my paycheck that goes right into a high-yield savings account. I never would’ve missed the money, and I would’ve gotten used to living off of 10% less than I was earning.
4. Pay off your credit cards
Credit cards can be costly. I successfully managed to clear my credit card debt after securing a job. However, I accumulated more debt later due to the absence of savings. Although the debt is on 0% interest cards, and I anticipate paying it off before the rate reverts, the burden of credit card debt is unsettling. Repaying it sooner rather than later is crucial for your peace of mind and financial well-being.”
5. Start investing
The magic of investing lies in compound interest, which has a more significant impact when you start early.
The article gives an example of a 25 year old who invests $200 a month, and earns an 8% return on it. By the time he turns 65, he’ll have $703,000 in his account. However, if he waited to start until he was thirty, he’d have only $462,000. By starting 5 years earlier, he makes $241,000 more off of only $12,000.
This is one of the few things I’m doing. I’m contributing a decent amount to retirement, but it could be more. I plan on opening a Roth IRA on top of the money I’m already investing in my 401K.
6. Establish Credit
“Establishing credit early, ideally in your teenage years (if done responsibly), is crucial.
The length of your credit history significantly impacts your credit score, and it is the one aspect you cannot alter. By obtaining a credit card as soon as possible and consistently paying it off each month, you can build credit. This proactive approach will position your credit score favorably when you apply for car loans or mortgages.
I acquired a credit card shortly after beginning college, which enabled me to establish excellent credit. However, regrettably, I also misused the card irresponsibly.”
7. Have a marketable skill
Before entering the workforce, it is essential to envision where you want your career to be in 10-20 years. Every action you take in your 20s should contribute to building the skill set necessary to achieve your aspirations.
It is never too early to begin specializing or networking. If you have a clear career goal, start honing relevant real-world experiences during college. This proactive approach will set you apart from other entry-level candidates.
While I am adhering to this principle, I acknowledge that I could improve my specialization. Although I possess a diverse skill set, it may be too broad and lacking depth in any specific area.”
8. Cut the financial umbilical cord
If you want to be treated like an adult, you have to act like one. You need to balance your own checkbook, do your taxes, and manage your investments.
You have to take responsibility for your finances as early as possible. No one else will care about your money as much as you do.
9. Marry Wisely
While discussing marriage and finances in the same context may seem uncomfortable, it is crucial to address the topic. Money issues contribute to more divorces than any other factor. Therefore, before tying the knot, ensure that you have open conversations about finances and align on goals and priorities. If there are discrepancies, it is vital to resolve them before they escalate into significant problems in the future.”
10. Have some fun
This is the only thing on the list I’ve really done well. It’s important to have fun, and it’s important to be responsible. The trick is to keep it balanced.
I thought this was a great list. The unfortunate thing is that many people – myself included – learn by doing the wrong things when it comes to money. I wish that more parents, colleges, and even entry level employers would make a point to discuss finances. It would put countless people in a better position on the road to wealth.
