Knowing the basics of money is a necessity, not a luxury. There are a lot of things I wish I knew about money in my 20’s. Now that I am officially 30, I wish I could have avoided some of the “L’s” when it came to understanding the true value of money. Luckily, I was advised to take my 20’s to learn, ask questions, and build a strong financial foundation. This took a little longer than I hoped for, but that’s the reality of life and money. But the one thing I didn’t really take seriously was how closely money is linked to one’s self-confidence.
Now, in order to build your financial confidence in your 20s, you have to learn the fundamentals of money. The only thing I wish I had available was a more realistic approach to doing this in your 20s. A lot of the professional financial advice I was taught in school wasn’t applicable to me or my community. This made the journey of learning about money much more difficult. So, to help you get over some of those hurdles let’s jump into what I wish I knew about money in my 20s.
If you don’t make a plan for your money, then life will.
The first lesson I wish I learned about money is if you don’t make a plan for your money, then life will. In order to do this, you have to set a budget to really maximize your plans and money. Trust me you’re going to hear a lot of budget bashing in your 20s. The main reason people do this is that they imagine a concrete budget with no wiggle room for error. Unfortunately, that’s what budgeting means to a lot of people. Instead, I recommend to create a new budget every month and plan out where you want your money to go to. I will admit that it’s a little intimidating to learn and see how much we actually spend. But, if we stay naive to our spending then we will eventually end up living paycheck-to-paycheck without even noticing it.
Now, I am not going to sit here and say that the first few months of budgeting is going to be easy. We have to understand that not being good at budgeting is normal and part of the learning curve. Just like everything else in life, if you want to get better at something you’re going to have to practice. Little by little you start learning more about your spending habits, what motivates you, and how to maneuver your money. But this all starts with creating a budget to see if you have an income problem or spending problem. Once you know your problem areas, you can start making positive financial changes to improve your finances.
Paying your essential bills is also paying yourself first
Now, you’re going to hear this phrase a lot, I mean a lot! To be fair I’ll share the classic meaning of this phrase and I’ll then share my version. When you hear “pay yourself first” this is saying to save money or invest for retirement before paying your bills. They say treat saving and investing like the first bill you have to pay. This is great if you budget and if you don’t live paycheck-to-paycheck. For most 20-year-olds, you’re probably already stretching yourself thin with high costs of living, debt, and starting a family. This is a stressful way of managing your finances at the beginning of your financial journey.
My version of pay yourself first, is to pay your bills first. Make sure you have a safe place to lay your head, food in your fridge, and reliable transportation. The truth is you can’t focus on the future if you’re “now” is miserable. One of the best ways to get your life on a less miserable state is to do a budget to clearly see how much your cost of living costs is. Then you can determine how much you can afford to save and invest comfortably, once you’re in a more stable place financially.
You absolutely need an emergency fund
One of the biggest money lessons you should learn before leaving the nest is that you need an emergency fund. I know a lot of you have heard the saying of “save for a rainy day”. Well, that’s definitely not the same as an emergency fund, let me explain the difference. A rainy day fund is money you set aside for when you go over on your budget or need something unexpectedly. These funds can be used to cover a credit card overage or something as simple as new window wipers for your car. While an emergency fund is for more intense situations like hospitalization, job loss, or big car problems. Knowing the difference can clarify the purpose of the two and why they’re not the same.
It can be very difficult to save money for an emergency fund in your 20s, trust me I know the struggle. But one tip that made it easier for me was getting clear on the expenses I would need my emergency fund to cover. This made it easier for me to calculate my 1-month emergency fund and not save more than I needed to. I know that sounds crazy, but when money is tight you want to make sure you’re maximizing your income. That means setting goals and understanding what you need to make ends meet if an emergency does happen. Then it becomes easier to figure out if your lifestyle needs more or less money for your emergency fund.
Save with Purpose
At 27 my son was diagnosed with a heart defect called Tetralogy of Fallot. I learned one of the most interesting money lessons of all time. I learned that if you don’t know why your saving money, you won’t save. When on the Clever Girl Podcast with Bola Sokunbi, she told me that “Once life shows you why you need to save, you will save”. In order to break this habit out of necessity, you need to give your money purpose by reminding yourself of what your money is doing for you. The best way I was able to stay organized and keep my vision clear about my goals was to use the savings accounts of the High-5 Banking Method.
“Once life shows you why you need to save, you will save.” – Bola Sokunbi
I also, recommend to not overwhelm yourself with trying to do everything. Focus on one long-term goal and a few short-term goals that make you happy. Trying to do a little bit of everything just leaves you burnt out and unmotivated to continue the grind. We did this in our early 20s and saw little progress. This stage of our financial journey reminded me of a Dominican saying “mucha espuma, poco jugo”. Meaning a lot of foam, little juice. The foam representing all the hard work and the little juice being the small return. It wasn’t until we got really clear on our goals and focused on knocking them out one at a time. that we saw bigger progress.
Update your Childhood Goals
As a young adult, the first thing you want to do once you’re on your own is to get all the things you’ve always wanted. The flashy car, the nice apartment, and the fun nights you’ll never forget. The harsh reality check kicks in once you get the car note, rent, and the credit card statement all come in. For most of us, these expenses leave us living paycheck to paycheck and in deep debt. The best way to not get into this mess is to dump our old childhood goals and create new ones. Because hey, sometimes our new life will cost us our old life and that’s okay.
When creating new goals, we have to remember to be realistic and start creating goals from where we’re currently at. Because even though our current situation isn’t our final destination, dreaming too far into the future can overwhelm us. We can get so in our head that the small baby steps in between start to seem too large to accomplish. I recommend looking at your goals in multiple stages. This way you can enjoy seeing the progress and mentally stay on track to where you’re trying to go. Because the reality is that these are all temporary stages in life that we learn and grow out of. Don’t let unrealistic expectations keep you from creating new goals that align with where you’re trying to go.
The Money isn’t Always Worth it
Have you noticed that everyone has the same goal of what making it looks like? You make $100K, you have $1 million in your retirement account, and you have the most amazing lifestyle ever. Well, something I learned early on in life is that some people will do some crazy sh*t for money and the truth is that it’s not worth it. Be very cautious of who you glorify just because they make money. Because the old saying of everything that glitters is not gold is true. This was an important life lesson I learned in my 20s that challenged my goals and who I take advice from. I highly recommend being skeptical before agreeing to anything that makes quick money or people who promote quick money scams.
Unfollow the Joneses
The popular saying of “don’t keep up with the Joneses” is a saying for a reason. We all know them and see the fancy clothes, big house, luxurious cars, and vacations. It looks like the perfect life and the instant thought of “why isn’t that my life” pops into your head. You then go down a rabbit hole trying to figure out how in the world can they afford it all. Instead of getting your head wrapped up about how much money someone else is making, refocus all that energy on you. If you want to make more money you can’t do that if you’re busy wondering about the Joneses.
The best advice I have for anyone in their 20’s is to unfollow, mute, or disengage with the Joneses. Just doing any of the three will instantly improve your day and life. It’s already hard to make ends meet, contribute to retirement, and stay out of debt. None of us need the reminder that we’re never doing enough, because we all know we’re doing a lot. Once you have a good balance of your money and life your insecurities with the Joneses will disappear and no longer be a topic of conversation.
Talk about money with your partner
Talking about money with your partner is one of the most difficult conversations to start. It doesn’t matter if you’re on a date, talking with family, or your husband. If you’re talking about money, it’s going to get awkward. But the reality is that you learn a lot about a person when you talk about money. You learn about their goals, values, and mindset about how they view life and their future. To me, these are some of the deepest conversations that I ever had with my husband when we first started dating. Even though it was a difficult conversation to start, it’s definitely worth tiptoeing into if you want to build trust and wealth.
You Need Term Life Insurance
Talking about life insurance in your 20s is literally one of the most depressing financial matters ever. You just started living and now we need to bring up death in your 20s. I know, this is an uncomfortable topic, but if something did happen to you and you passed what would happen? How will this affect your family and would they be able to afford your funeral and medical bills? Unfortunately, most people can’t afford these expenses. That’s why so many people lean towards term life insurance.
Term life insurance is a life insurance policy that only lasts a specific time period like 15, 20, or 30 years. These policies are meant to offer you income protection for your loved ones while you’re in your wealth-building years. This is a great low-cost option while in your youth as premiums are often low due to good health and life expectancy.
To be honest, it’s so difficult to achieve any kind of balance in your 20’s. Every tip in this blog was learned the hard way and to be truthful, I am glad I learned them. I am a much better person because of the financial and life struggles I’ve experienced in my 20s. These are the things that definitely require some time to pass before you can truly embrace the lessons. I hope the money lessons I wish I knew in my 20s helps you during your financial journey.