The 20s are arguably the best decade of one’s life. You get your first job, you have the freedom to switch careers till your 30s, you look forward to finding your soulmate. But this is also the decade when the money habits you inculcate either propel you towards your dreams or hold you back.
We discuss four good money habits for those in their 20s:
#1 Create a budget, and stick to it.
Budgeting is the most important financial habit you must inculcate in your 20s. Draw up a budget for six months, and stick to it come what may. Budgeting involves setting aside money for essential expenses (travel, food, groceries, bills, house maintenance) and incremental expenses (going out, gifting friends or loved ones, other recreational activities) and savings. Of these, the savings component must remain the same even if the other two fluctuate month after month. Also aim to reduce the incremental expenses as much as you can. Budgeting helps keep your finances on track and checks your income from being spent unnecessarily.
#2 Use credit cards but be prompt about repaying the bills.
It helps to be responsible with your money. It takes a lot of effort to earn your monthly paycheque for it to be squandered on frivolous things. If you are a responsible spender, then you must consider using a credit card instead of cash to buy whatever you need. There are several benefits of credit cards, most significant of which are that they extend credit when you don’t have ready cash, and they keep you safe from theft. Besides, there are other credit card benefits like reward points and heavy discounts, varied experiences like airport lounge access and other treats, preferred mode of payment for airlines and five-star hotels, etc. Every year, you save a lot of money on shopping and experiences when you redeem the benefits your credit card offers. You end up with a trail of expenses that you can inspect when you use a credit card, as opposed to not knowing where your money went when you spend cash.
#3 Save, save, save.
This is the most important financial lesson for every 20-something person. Your income may not be as high as you desire, and it does not do to spend it on things you don’t need. The savings habit will keep you safe from emergency expenses that you may not have the ready cash for. However, you must go about it the right way. Save a fixed portion of your income every month the moment you receive your salary, instead of waiting to save money at the end of the month. If you follow the latter approach, you might end up deferring savings to the succeeding month, or not have enough to put in your savings kitty. Start with 10% of your monthly income and set it aside in a separate savings account that you rarely transact from, in the first week of every month. The rest of your income is for paying essential (bills, groceries, rent, fuel bills) and non-essential (eating out, vacations, hobbies) items.
#4 Be prompt about repaying loans.
The 20s are a time for major leaps of faith in several ways – you want to have your own car, your own house, take foreign trips, get married and start a family, and so on. All these dreams are expensive and you must take loans to fund them. While it is never wrong to borrow institutional loans for these needs, it is wrong to default on repayments. Not being prompt with repayments or having the bank issue you a defaulters’ notice against unpaid EMIs ruins your credit score and scuppers your chances of getting loans in the future. These behaviours brand you as a ‘high risk’ borrower – your loan applications might either get rejected, or you may be offered a higher rate of interest to cover risk. Your credit score is also lowered by paying bills after due date, or not paying them at all.
Above all, employing frugality is not to be confused with being miserly. You are entitled to have fun and explore your life to the fullest with the money you own – but tempering a bit of caution in your financial life will always help more than hurt.
