It is often said that the ideal age to start investing is around 20. I know, at that age most people don’t have much money, but they don’t have many expenses either, and it is probably the age at which it is easiest to make money.
It is an ideal age for taking risks. You have time to start three companies and fail, and by 30 you will have forgotten all about the first one. Above all, it is a good age because it gives compound interest time to do its work.
These are some of the things you should have achieved by the age of 30 when it comes to your personal finances. If you are in your twenties, here is a short guide to what you should start working on, because remember: 30 is not the new 20.
1. Build an emergency fund
An emergency fund is something everyone should have, regardless of age, and especially families with children. The usual recommendation is a fund that would let us get by and cover all our expenses and loan repayments for at least 6 months if we had no income at all during that time. Others talk about a minimum of 12 months.
That will be your first target. Work out your monthly expenses (all of them, plus a percentage for the unexpected) and reach that amount of savings first.
2. Automated saving
It is a very good idea to have a savings plan in which your bank takes a fixed amount from your account every month, however small (30 or 40 euros), and that money goes into an interest-bearing account. This kind of standing payment creates the adult obligation of having that money in the account, as well as our first bit of “mental stress” about not having it unless we do something to have it. It may seem twisted, but it is very useful.
3. Start reading books about finance
A word of warning: I keep noticing that many of our readers love articles on financial education but find the ones on finance and the stock market boring. I always insist that there is no great fortune on this planet that has not passed through equities. What’s more, if you can recognise the direction a stock market is heading, you can also easily multiply your capital. And to do that you need a minimum of knowledge. (Read: The best books on financial education.) Must-read: The Intelligent Investor, by Benjamin Graham.
4. Live within your means, but live
Your twenties are an ideal time to save, but also to enjoy yourself. Don’t skimp on the small pleasures, but avoid the expenses you know you can really do without. Above all, remember that if you are spending money to impress someone, you are probably not surrounding yourself with the right people. Also look for ways to have fun without spending money, because if you can’t manage that, in time you won’t be happy even with all the money in the world.
5. Stay away from debt for as long as possible
Start using the most basic maths. Sometimes paying for something in cash saves us a reasonable amount of money. When you need to buy something, it is sometimes just a matter of waiting a few months so you can pay for it outright instead of paying the interest that comes with buying on instalments.
And before using a credit card whose balance you can’t pay off in full at the end of the month, think about whether you can really afford what you want to buy, or whether you really need it.
6. Learn to negotiate
Over time, everything becomes a constant negotiation: negotiating prices, negotiating your own salary, negotiating with suppliers… if you’re not careful, one day you’ll even find yourself negotiating a day and terms for sleeping with your partner. There are many negotiation techniques, and I suppose there must be plenty of books, although there is nothing better than learning from a good mentor.
7. The very basics
Remember these 5 financial education maths tricks.
8. Recognise the expenses you should avoid
We made a list of the 10 most stupid things to spend money on. Try to avoid most of them.
9. Recognise the habits behind financial success
There is nothing better for financial success than knowing the habits of real millionaires.
10. Learn to be smart
Knowing that we are less intelligent than we think makes us a notch more intelligent. That is why a few weeks ago we started a series of articles on how our own mind deceives us in all kinds of areas: friends, investing, business… Some will think it has nothing to do with money, but that’s not true. Everything has to do with money:
Featured image: Pbergerd, CC BY-SA 4.0, via Wikimedia Commons.
