If you are confused about finances I can understand. When someone is talking about money, you might feel that they are speaking Martian. And even if you understand how money and investments work, you have to understand that it works differently for different people.
What’s important to people your parent’s age may not be important to you. So what are the most important financial areas to focus on for people in their 20’s? Glad you asked young Jedi. There are 5 of them. Let’s take a look.
1. Dream Vision
You have an amazing opportunity that older people don’t no matter how much money they might have. You can create just about any life you want if you are willing to do what it takes. That’s a huge gift. And it’s true because you have lots of time and very limited downside risk to taking some chances. It’s exciting.
What does your dream life look like? Paint the picture of what you want your life to be 15 years from now. Write it down.
- Where will you live?
- Will you be single or married?
- Will you have children? How many?
- Where will you go to vacation?
- Who will you spend time with?
Once you have that picture clear in your mind write down what you have to do to make that picture your reality. Is your current course of study or career consistent with or contrary to the life you really want? If not, what do you have to do differently to bring your life in alignment? Write this all down on a piece of paper.
The great thing about being young is that you can make minor changes now and they will pay off big time. Think of a ship that is leaving Los Angeles. If the ship makes even the slightest change in course at the start of the voyage it will absolutely determine the final destination. But that slight change of course made at the end of the journey won’t have any impact.
It’s much easier to go back to school and/or shift your career now than to try to do so 10 years from now. Relatively speaking, you don’t have as much to lose now compared to people 10 or 20 years your senior. That means it is easier to cut your losses short and get on a better track when you are in your 20s. Don’t stay stuck on a road that is leading you to Nowheresville. You don’t have to.
2. Life Insurance
Chances are good that somebody you know and probably your own age, is starting their career as a life insurance agent and there is a very high probability that they will try to sell you a whole life insurance policy.
Don’t’ hold it against them. They are probably otherwise very nice people. But don’t buy that insurance. If you do you’ll likely regret it for a very long time.
Life insurance agents are taught to sell as much whole life insurance as possible because their bosses make a lot of money on that product. They beat it into the agents that whole life is a good investment and then the agent tries to beat this into you. In some unique cases, whole life works. But for most people I meet, whole life insurance stinks. If you want to understand more about that please read this post on the different kinds of life insurance and whether or not you need life insurance in the first place.
If you are young and nobody else depends on you financially, you may not need any life insurance right now. Let’s keep going.
You MAY not need life insurance – but you surely do NOT need debt. Debt is the ugliest 4 letter word there is in finance. You will never be wealthy if you have debt. You will not have any financial freedom if you are in debt either. That’s because every decision you make around money be will framed by your debt if you have any. You may not be able to do the things you really want to do if you are in hock. Worse, you may be stuck in a career you hate because you need the money to pay your debt. Yuk.
If you are currently in debt and in your 20s commit with everything you have to eliminate this blight from your life as quickly as possible and never let it darken your doorstep again.
Saving is the flip side of debt and it’s a beautiful thing. Embrace your savings and investing because it is the key to your very happy future. The best way to do that is to track your spending and automate your saving. This is the #1 most important thing you can do. It will keep you out of debt and on track to realize your dreams. It doesn’t matter how small you start. Just start tracking your spending and set aside some saving every month.
If you think you can save $100/month, start off by having your bank (or investment company) automatically draft out $50 a month. Make sure they take the money at the start of the month. This step insures that you can’t spend it. Sorry.
But start with an amount you feel super comfortable with. Something you won’t have any trouble doing. We want to build success. Once you see how easy $50 is to sock away, bump it up. You can always increase (or decrease if need be). We just want to start you off with the right habits.
Most young people don’t have a lot of money to invest but that’s no problem. What you do have is plenty of time and that’s far more important. And don’t diminish the importance of the money you do have and set aside each month. Don’t look at these sums as play money.
Sometimes young people get super aggressive and take huge risks with their money because they feel they have little to lose. That’s a mistake.
Your money is going to help you achieve that picture you painted in the first step. That means it’s important to put every dollar to work. Please don’t speculate. If you need help making smart investment decisions, follow the link below and subscribe to Wealth Pilgrim. You’ll get a free week course that will teach you all the investing basics in language you will understand. Also, drop me a line and let me know what questions you have. I’ll be happy to either answer you directly or in a post.
If you are in your 20s you have more going for you than you may realize. Your expenses are low so you have a lot of freedom. Don’t worry about money. Now is the time to develop the good habits we spoke about above. You can change course without much fallout and that’s exciting. Focus on the direction you headed in rather than where you are right now. Your life is a canvas and you can paint any picture you want.