Your twenties are undoubtedly the prime of your life, even though it might not feel like it while you’re living through it. You are young enough to make mistakes and recover from them without any long-term repercussions - which is good because most of us enter our twenties geared to earn money but with no idea how to manage our income and expenses. Personal finance, financial knowledge and how money generally works is not taught at school or at university, unless you are following a finance-related major. This invariably leads to many young people making a lot of financial gaffes early on in their careers, such as overspending, poor savings habits and bad investments.
Here are some finance tips that everyone should be aware of in your twenties in no particular order, because each one is highly important.
1. Don’t show off your money
Once you start making your own money, you might feel compelled to lavishly spend money on your friends and family - which is completely understandable. But try to avoid flaunting your money in front of other people no matter how tempting it might feel to buy gifts or solve financial problems for your loved ones. What this usually leads to is people assuming you have enough money to spend, which then leads to them asking for favours, loans etc. not always with ulterior motives but with the simple belief that you have enough money to spare as well as having little to no financial commitments. The unpleasantness of being asked as well as saying no or worse, being unable to say no, can be avoided by simply not showing off your wealth.
2. Be wary of lending money to others
People asking to borrow money from you will happen in some way or form - be it outright asking you for a few thousand rupees or else asking you to cover for their food, drinks or movie tickets. Learning how to handle these tricky conversations i.e. saying no in a polite but firm matter, is best done at an early age. No matter how much money you earn, you generally cannot afford to give money away freely at any age. The age-old adage of “when you lend money to a friend, be prepared to lose your money or your friend” is very true. If you are able to garner a reputation for yourself as someone who is very careful about lending money to other people, you will be able to avoid unnecessary requests from other people.
3. Don’t agree to be a guarantor for anyone
If you are unwilling or unable to lend someone lakhs or millions of rupees, you should have the same attitude to being a guarantor for someone else’s debt. It might be difficult to say no when your best friend asks you to be a guarantor for their vehicle loan but you simply cannot afford to take on the burden of someone else’s debt at such a young age. In the very likely event that your friend is unable to keep up with their payments (it could be due to any number of reasons, such as poor financial planning or even sickness), it will be your responsibility to settle their debts. This is one financial trap that could have long-term repercussions on your life and you should steer clear of it at all costs.
4. Be very careful about borrowing money
Once you start earning money, you will be inundated with many tempting offers from banks for credit cards, personal loans, vehicle leases etc. Navigate your borrowings very carefully to avoid falling into a debt trap. Credit card agents will offer you credit limits that are three times your salary and you might feel tempted to take out a personal loan to accompany your friends on a foreign trip, reasoning that you only have to pay five thousand rupees per month for the next five years. What you need to keep in mind is that your life will change very rapidly over the course of your twenties, and it is imperative that you take on as little commitments as possible. Your credit card debt might be the thing that prevents you from switching your career or leaving a toxic workplace. Try to manage your twenties with only the money you earn. But if you ever come across a need to purchase something, you can always source money from OnCredit.lk
5. Save a good portion of your income
Even though you might feel like life can’t possibly get any harder or complicated in your twenties, the reality is that we tend to overcomplicate things. Try to live as freely as possible and revel in having less responsibilities and commitments. Don’t spend lakhs on fancy phones and luxury goods. Save as much money as possible during this time - compound interest and good investments will ensure that your savings habit will be rewarded in the long run. Try to set aside at least 30% from your very first monthly salary itself to get used to how much of your salary you can actually spend. Additionally, inculcating a savings habit from an early age will set the pace for the rest of your life.
6. Learn about how finance works
Finally, there’s nothing more valuable than amassing financial knowledge in your twenties. Not only will this prevent you from making bad financial decisions but it will also help you be smart about your investments early on which will impact your life positively in the long run. Learning how credit works, being able to identify risks in otherwise perfect loan offers and knowing the best investments will make a world of difference in how you spend your money. Simply saving steadfastly will not aid you in becoming wealthy or attaining financial stability.
While this might seem like a lot to ask of someone who is struggling to navigate their twenties, the above tips are just some basic guidelines that will help you streamline your personal finances for the rest of your life. There is no “one size fits all” approach when it comes to financial knowledge. It is very much a trial and error mechanism where you will need to find out what works for you personally and what doesn’t.