Good money habits can position a 20-something to build a significant amount of wealth over their lifetime.
Sadly, most adults in their 20s don't have a clue about how they should be managing their money, and they will deeply regret their decisions in their 30s and 40s.
The reason I know this is because I made almost every bad money decision one can make in my 20s, and today I'm suffering the consequences. Even though I'm on the right track today, I wish I could have a do-over.
Since that's not possible, I'd like to help those still in their 20s make better decisions so that they can set themselves up to build wealth and reach their goals.
Personal finance can be intimidating, but with a little guidance, you can start making decisions today that will position you to build wealth and change your future. Get started by reading three simple things you need to know about money.
1. Money does not equal lasting happiness.
Most people think of money as the key to happiness. We believe if we can build enough wealth, we'll solve all of our problems and be satisfied. But the few that obtain the wealth they desire discover a horrifying truth — money alone is an insufficient source of lasting happiness.
Psychology Today contributor, Dr. Amie M. Gordon, tackled the question, "Can Money Buy You Happiness?" In her research, she discovered that "having more didn’t equate to being happier" but that spending money on experiences made people "happier, contributed more to their overall happiness." For example, people were happier when they spent money to go on a vacation (experience) rather than a new pair of shoes.
The effectiveness of money as it relates to things and experiences is an important and helpful distinction. Nevertheless, while money can buy you extravagant memories, experiences are temporary and can't satisfy you for very long. Furthermore, you don't need a lot of money to make great memories.
So, how does one obtain lasting happiness? The good news, it's free, but it's costly. Happiness is discovered when we embrace our real purpose in life and live to radically and selflessly serve other people. Treasure this truth in your 20s, and it may positively affect your wallet and will definitely improve your lifestyle.
2. Borrow cautiously, if at all.
Student loan debt is out of control, and most adults in their 20s are living in the midst of the chaos. Debt.org reports that students loans jumped from "$260 billion in 2004 to $1.4 trillion in 2017; average debt jumped from $18,650 to $38,000 over that same period." These numbers reflect my student loans. I enrolled in college in 2006 and graduated in 2010 with over $35,000 in student loans.
College students and young adults are bombarded with opportunities to borrow large sums of money unnecessarily. Many don't fully understand the risk they're taking on. They're also putting an unnecessary financial strain on their future family if they decide to get married.
If you're in your 20s and reading, please hear me: Borrowing large amounts of money is serious business. I know it might not seem like it at the moment, but you're making a decision that will follow you for years and possibly your entire life.
Never borrow money unless you have to. Debt is too risky to take lightly. If you owe money and have a history of borrowing too much or carrying balances on credit cards, it's probably wise to do everything in your power to avoid debt.
3. Make a plan for your money.
Budgeting is unpopular, period, but especially for 20-something adults. Most people cringe when they hear the word. It requires us to dig into the details of finances and account for where every penny is going.
I get it. It can be very intimidating. I use to cringe as well. Budgets made me think of spreadsheets and calculators, two things I'm not a fan of together. But being proactive when it comes to your finances is crucial and it's essential to your success. The benefits of budgeting are endless. It helps you save more, reduces anxiety and stress, puts you in control, and empowers you to reach your goals. It's a no-brainer.
The good news is budgeting has never been easier. Apps like You Need A Budget (YNAB) make it extremely easy and fun to be intentional about your spending. There's also Mint, Every Dollar, and countless others. Take your pick.
Refusing to budget is a financial death sentence and even though it feels like everything is okay, you'll soon discover that you've been sitting on financial death row. But if you like the sound of not overspending, saving more cash, and the ability to purchase confidently, you have to start budgeting.
If you start doing these three things in your 20s, you'll uniquely position yourself to build wealth, provide for your family, support causes you're passionate about, and so much more.
What are some things you wish you knew in your 20s? Let us know in the Facebook group.
12 Rules to Get Out of Debt Fast
A free pdf containing time-tested rules that will help you save money and eliminate debt quickly.