Indispensable Tips for Managing Money in Your 20s

So, you’ve gladly reached your 20s, the age when you can finally start earning and feeling independent.

While those in their early 20s might often feel stuck between ‘I need to save money’ and ‘you only live once’, for the ones in their late 20s, the anxiety to manage their finances effectively would be mounting up. We get it. You want to save money to buy that dream house, a fancy car, and the big Europe trip that you have been planning recently.

The experienced don’t say “save while you are earning well in your 20s” for nothing! The way you plan your finances in your 20s can affect your financial stability for the years to come. Good financial management habits in your 20s will help you avoid needless debt traps, save money for the things that are critical for your growth, and take advantage of compounding to accumulate a fortune for your future.

Best financial tips on how to budget money in your 20s:

1. Make a Career Out of What You Love

You don’t want to be stuck at a job that you don’t like. Finding what you love and making a career out of it won’t feel like you’re tormenting yourself just to earn money. At the same time, you must learn how to ascertain your worth and ask for it to ensure that promotions and increments follow.

Another pragmatic financial planning tip for your 20s is to be entrepreneurial, that is, to find out your other hobbies like blogging, tutoring, baking, etc. and start a side gig for an extra income while you have the gift of energy and time.

2. Learn How to Manage Your Budget

Budgeting is the first step towards financial management. You must know exactly what you earn and what you can afford to spend. Heard about the 50-30-20 rule? It’s simply spending a maximum of 50% of your income on necessities, 30% on wants, and at least 20% on savings and investments.

Consider using a budget tracking app that can help you set goals, track expenses, and enables you to save efficiently.

3. Define Your Financial Goals

Make a note of what you envision in life. Define your short-term and long-term life goals and set your financial goals according to them. It could be anything from taking a certified training course, a world tour, moving to another city, or buying a vehicle.

Whatever your goal may be, plan how much you need to save for it and how. Once that is done, it is important to establish your priorities so that you are spending your money carefully to be able to achieve those goals in due time.

4. Foster an Emergency Fund

Even though you have insurance, it may not be enough to cover certain unforeseen expenses in difficult times. Hence, it is advisable to start building an emergency fund to have liquid savings on hand as a precaution. Every month, chip in a small amount into your emergency fund.

You should have enough for paying 3 to 6 months’ worth of expenses in this fund. Trust us, you’ll be relieved when you don’t have to ask your parents or friends for money during an emergency.

5. Choose to Take Calculated Risks

By taking calculated risks, we mean carefully considering the probability, impact, and rewards of the risk. Taking calculated risks in your 20s will prove to be a wise decision in the long run. The positive side is that if you make mistakes while you are young, you can get more time to recover from them.

For example, moving to a new city, investing in the stock market, starting a new venture, etc. should all be executed after calculating the financial risks.

6. Start Investing

Now is a great time to learn the basics of investing in low-cost funds. Yes, you may be earning very little at the start of your career but you can still afford to invest. Just set Rs. 1000 aside every month. With Rs. 1000, you can start a SIP (Systematic Investment Plan) in mutual funds or even a PPF (Public Provident Fund).

As your income increases, you can increase the number of investments too. After a few years when you see your money grow, you’ll be pleased that you started early.

7. Save Up for Big Purchases

It’s easy to elicit momentary happiness during those sale days on shopping websites where your credit card is already linked, and voila you order something to your doorstep with a simple tap on your phone! But have you thought about how much you could save up for the big purchases that you have planned for yourself with that money?

That’s why it is important to establish priorities and decide what’s more important to you – a new laptop or a new dress, a new bike or a 2-day stay in a fancy resort?The choice is yours.

8. Plan an Easy Retirement

You might feel inundated with the advice of having a retirement plan in place when all you want to do is have fun in your 20s. But good retirement planning skills can set you up for financial success later while granting you some fantastic youthful years.

PPF and EPF contributions going from your salary are not enough. You need to invest in high-yield assets for your retirement while considering the inflation rate. Take help from a known finance expert or a professional to start building your retirement corpus right from your 20s.

It’s not always about earning good money. Unless you make your money earn for yourself, your net worth won’t increase. So, while you make advancements in your career, start sorting your income right away and begin your journey towards financial liberation.

Shiv Nanda

Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters, and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at shiv@moneytap.com.

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