4 Money Tips I Wish I Would Have Known In My 20’s

Money Tips in 20's

The average 20 something year-old has more than $30,000 in student loan debt and who knows how much more debt.*

That’s a crazy amount of debt and a lot of them will not be able to pay it back based off the job they get anytime soon.

While my debt was only a car loan (that I could afford) and my mortgage in my 20’s, I still wished I would have taken better care of my money.

There’s 4 main money tips I’ve learned over the years that if I would have applied in my 20’s, I would already be financially free. Expensive lesson learned.

I am, however, now doing these tips and am on the path to financial freedom by 40!

Money Tip #1: Map Out Your Money Plan

The first thing to managing your money is to have a purpose for it. If you don’t have a purpose for your money, it will control you instead of you controlling it.

Honestly I didn’t have a clear picture of what I should be doing with all my money in my 20’s.

I lived at home (rent free, I know, I’m a lucky one) while getting my degree, I finished my business bachelor’s degree at 21 years old without taking out any student loans and had a car that was paid for.

I found a great job about 6 months after graduating (I found a not so great job right after graduating that had empty promises…but that’s another story).

As you can see, I had minimal expenses so I had a fair amount of money.

I kept a budget, but I really didn’t know where I should be putting my money to make it work for me.

I was contributing to my 401k at work, but not that much. I was putting money into savings, which was good (but not great because I didn’t need that much in savings).

I bought a Toyota Tacoma, which made me really happy. I drove that thing for 10 years happily.

I was spending a lot of money on clothes I didn’t really need nor made me happy after a while.

I was also traveling, which was really fun and I enjoyed Europe, Panama, Belize, Hawaii and more.

But here’s the thing, I didn’t have a clear money plan mapped out and looking back I wished I would have made a plan. Even realizing I could retire early (become financially free) if I put my money in the right places early enough would have been helpful. I want to help you do that.

So here’s some action steps for you to map out your money plan.

1-Decide when you want to become financially free (aka retire) and work backwards from there.

2-Make sure you’re tracking your money (yes, like have a budget, or a spending plan as I like to call it). If you don’t know how much is coming in and going out (and to where) you’ll never be the master of your money. It doesn’t have to be complicated, but something that shows you what’s happening with your money.

3-The third thing is to align your spending with your goals, values and priorities. If you’re priority is to become financially free sooner than later then those cute shoes can wait! Get really clear on what you truly value.

If you want to travel now and are willing to put off financial freedom a little longer, then do it.

You set your own goals and priorities – just make sure you’re aligning your spending habits with these and not just something that happens to come up.

4-Make sure an emergency fund is the first thing you contribute to (not eating out with friends) when you receive money. Anywhere from 3-6 months worth of expenses is usually good. Just depends on how much you’ll need access to if an emergency does occur.

5-Once you have your emergency fund funded, put that amount toward investments (and increase it as you go).

Start investing and invest as much as you can as soon as you can!!! I’m not kidding around here. I didn’t realize how important this was to do early on. I’ll explain more in a minute, but honestly, I cannot emphasize how important this is. Trust me on this, you’ll regret it later if you don’t (and I know because I am regretting it now).

6-Decide what percentage of your money you want invested in a brokerage account with stocks (which we’ll talk about in a minute), in retirement accounts (like your 401k or a Roth IRA), an HSA (if you’re eligible) and real estate. Depending on your goals and personality, you may not invest in one of these options or you may choose something else.

I have about 10% in individual stocks in my brokerage account, 70% in real estate and 20% in retirement accounts.

You can always change the percentage, but it gives you a plan to follow so you can automate it more. You’ll know how much of your money you’re investing will go into which investment bucket.

If your job offers a 401k with a match, you can start investing up to the match.

You can also set up a Roth IRA at Vanguard and invest the max each year ($5,500). You can buy individual stocks in this account or index funds (like VTSAX, you don’t need to make it complicated). Just realize if you want the money before 59 ½ you can only take out what you put in without penalties.

Mapping out your money plan is so important. You have to have a purpose for your money so you can quit worrying about money.

Money Tip #2: Create Passive Income

Creating passive income is key to financial freedom – how else will you become financially free? (Get a sugar daddy…um, probly not, sorry to dissappoint.)

Start creating passive income as soon as possible. Once you begin, it becomes easier and easier to increase it.

There’s something called compound interest, which is interest earning on interest. The earlier you start investing in the stock market, the more you can take advantage of compound interest. When you start withdrawing your money, you’ll have a lot more because it’s been earning money passively for you.

I knew about compound interest (I took finance in college), but actually implementing it is key, not just learning about it. Put as much money in your investments as possible so you can make A TON more over the years.

Real estate is another great way to create passive income. I bought my first property at 25 (I should have bought it earlier, but I’ve learned) and got roommates to pay my mortgage. Bam – passive income.

I didn’t buy my second property until in my 30’s (I was a chicken and didn’t have my money plan fully mapped out, mistake).

When I did, I got renters in that were paying more than what my expenses were and increased my passive income – bam.

I wish I would have bought as many properties as I could during the real estate crash – total sale on houses! Lesson learned. Act on the opportunities that come your way.

Action steps for you to create passive income.

1-Invest in the stock market as early as possible. I like a buy and hold strategy.

2-If you are interested in buying properties (which I highly recommend) start doing it. I like to buy and hold my real estate properties as well. I buy single family homes, get renters, get passive income.

It doesn’t really matter to me if the property value goes up or down because I’m buying and holding, not trying to flip it or sale it soon. Over time property values will rise.

If you are buying a place to live in for yourself, rent out rooms or the basement so you can create cash flow from it.

3-Start a business with little or no start-up costs. There’s plenty of online businesses that can generate passive income for you. You can start small and continue to build up from there.

Money Tip #3: Invest in Stocks

This one is essential. I know I touched on it earlier, but learning to invest in stocks is one of the best money tips because it’s where I’ve seen my highest returns.

If I were to cash out all of my stocks now, I’d have over a 100% return!

Just think if I would have started in my early 20’s!! Hello, that’s one of the reasons I’d already be financially free. Lesson learned.

People are often afraid to invest in individual stocks but if you pick good, stable companies it’s really not that risky and you get super high returns.

Money Tip #4: Put All Possible Purchases on a Credit Card

This tip may be contrary to what a lot of people teach, but, IF YOU CAN HANDLE IT, do it.

One of the reasons people don’t recommend this is because of people that aren’t able to handle their money well, but if we are following our money plan we set up in step 1 we should be good.

I’ve never paid credit card interest and have been using my credit cards for years on the majority of my purchases.

Make sure your credit card has the cash back option (or skymiles if you’d rather) and use it for every possible purchase.

For awhile I had a check register for my credit card (like you would for a debit card) to help me keep track of my expenses, so you can do that if it helps you.

It’s free money you’re getting just for using the card so take advantage of it.

I remember going to a restaurant with a group of my friends back in the day.

I pulled out my debit card to pay and one of my friends asked why I wasn’t using my credit card.

I replied I mainly use it for large purchases. He responded he uses it for all of his purchases, because, as I just explained, you’re earning money when using it so just use it.

From that day on, that’s what I started doing. Even if it’s $5 at the grocery store. It all adds up and you can use the cash back to pay down your credit card – win win.

Recap

Let’s recap the 4 money tips.

Set up your money plan to align with your goals, create passive income as soon as possible, invest in stocks and use your credit card for the majority of purchases.

While we’re at it, there were a few things I did right in my 20’s.

I always stayed out of high-interest debt. If I couldn’t afford it, I didn’t need it.

I built my credit score up by doing things like paying bills on time, opening a few credit cards and always paying them off each month. My credit score was at 843 last time I checked, I feel pretty good about that. 🙂

I always paid my tithing. I paid myself and God first (like we talked about above, funding our emergency fund first). I truly believe this has been the most beneficial.

I was always grateful for what I did have. Just having a mindset of gratitude made it easier to handle money because even if I didn’t think it was enough, I was grateful for something.

I want to know what money tips you have, share in the comments below!

 

*https://www.investopedia.com/articles/personal-finance/011216/average-retirement-savings-age-2016.asp#ixzz53FR1GPV1

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