Ten years from now, more than 90% of young people will regret not having taken certain steps with their personal finances. In fact, they will say things like “If only I had known…”
That’s how it was in the past and that’s how it will be in the future, because one of the main mistakes young people make is getting carried away by the excitement of youth and by that “twisted advice” telling you to enjoy the present (the here and now) and not to think so much about the future.
But for better or worse, the future arrives, and it’s actually a good sign when it does. It means you haven’t died.
What is the best personal finance advice you can give someone in their 20s?
To begin with, it’s true that we should enjoy the moments the present gives us and live each moment as if we were going to die tomorrow. But it’s even truer that when it comes to personal finances, we should plan them as if we were going to live forever.
This advice also applies to relationships: “Love and look after your partner, give yourself completely as if that person were going to be by your side for the rest of your days, but when it comes to money, protect yourself as if you were getting divorced tomorrow.” It may sound cold, but there are some financial ground rules we should follow before getting married.
There isn’t one single best piece of financial advice for a young person, but there is a set of tips we should take into account together so that there are no regrets later on.
1. First of all, a young person must be aware of how important financial education is
Sadly, they don’t teach you this at school. It’s not that money alone brings you happiness, but believe me, money problems can make you very unhappy down the line and keep you from being free in practically every sense.
At 20 you aren’t aware of this, just as you aren’t aware of how easy it is to reach a certain degree of financial freedom if you start drawing up a plan today. This is how much money you need to save to retire with a million. Of course, saving isn’t everything. Which brings us to the next point in personal finance.
2. Have a financial goal and a plan
A goal is a wish. A plan is the way we are going to reach that goal. Either way, we need a goal. And I understand this part is also hard for a young person, because it’s more common than we think for young people not to know what they want to do with their lives. Many older people still don’t know either.
Don’t picture yourself as a rich person or think about money for hours while striking odd poses to attract it. Instead, go out and get it.
Look at your financial balance: the income you receive and the expenses you have. That’s if you work, because if you’re a student…
In the end we always come back to the same point we keep repeating. The only way to improve our finances is to:
- Save more money
- Earn more money (generate more income)
A worker can do both (save more and earn more). A student will only have one option, which is to generate income, and these days that isn’t hard, because there are lots of ways to make money that anyone can do.
- Nobody can measure their progress without a plan.
- We can’t manage numbers we don’t see (that we can’t measure).
If, once you’ve analysed your income and expenses, you see that the numbers don’t add up, you know what to do: either you scale back your lifestyle (if you think that’s the cause) or you work on both fronts. I insist that at that age it shouldn’t be too hard to do both.
Although at 20 you may think you’re very young, your decisions are already starting to affect your future, and as this psychologist put it, 30 is not the new 20.
See also: 9 things you should know before you turn 30
3. Build assets or invest
Very few young people stop to think about building assets. I’m not going to fall back on the usual advice of “start a YouTube channel or a blog to make money”, because I think you have to bring much more to those two things than just the desire to make money.
This piece of advice carries another one with it. Whether you want to build assets or invest your money, you’re going to have to learn, and therefore you’re going to have to read.
Become addicted to constant learning. Become someone curious about knowledge, an avid reader.
That will put you ahead of most young people your age and of adults over 30. Even if you don’t see the importance of the reading habit right now, if you pick it up, you’ll be grateful for the rest of your life.
Always save at least 20% of your income. Don’t spend that money, and try to invest it so that compound interest starts working for you. What is compound interest? We explain it in depth here.
Even at this age you shouldn’t be afraid to take the plunge and start some kind of business or project. Now you can fail, and that failure would turn into learning. At 40, a failure is a real kick in the teeth. Above all, do things, plant seeds and some of them will sprout.
4. Don’t try to impress people
Trying to impress others with certain luxuries is very common among both young people and adults. It makes us spend money we can’t afford so that others believe we have plenty of exactly what we actually lack.
Maybe you think you need a big car to impress a girl. If that strategy works to get her to fall into your arms, seriously, find another girl.
Always keep your spending under control and learn to tell the difference between needs and wants or whims. Save on practically everything you can, except the dentist.
5. Build good habits in general
You should know that if you aren’t building good habits at 20, it’s because you’re letting bad habits into your life. Today it seems harmless to have fun drinking at the weekend or getting drunk to the point of losing your dignity. Have you ever thought about how that affects you and how it could affect you in the future?
The same goes for other eating or exercise habits and for some supposedly “harmless” drugs like marijuana, which is so fashionable among young people these days. There’s nothing harmless about it; in fact, it can cause irreversible cognitive damage and a serious dissociation from reality.
Remember that the moment you have an addiction, you’re no longer in control of your life. The addiction is. And it costs money, it costs health and it costs life.
6. And finally, avoid debt
This piece of advice couldn’t be left out. The further away debt is, the better, and the later it arrives, the better still. There’s no worse enemy of a person’s finances than taking on debt early. Above all credit card debt or personal loans, because they put an interest rate against us that will rarely be beaten by the return on any other investment.
We’re not going to get into the debate about good debt and bad debt right now. We’ll just say that good debt is debt we take on with the aim of obtaining a benefit that generates more money for us. Bad debt is debt we don’t take on for that purpose.
And I think knowing these points can give a person a better financial future. Since I imagine some people will now ask which books they can read to learn about investing or the stock market, I’ll leave you these 2 books for understanding the stock market perfectly.
See also: 10 pieces of life advice you’ll be grateful for after 30
Featured image: Jozef020, CC BY-SA 4.0, via Wikimedia Commons.
