I’ve been thinking lately about what I would tell my 20-year-old self about money if I could go back in time. Even better, I thought about the advice I would give to any 20-year-old about what you need to know about money in your 20’s.
Turns out, I have a lot to say.
What you really need to know about money in your 20’s
When I wrote the list below, I was surprised how much of the points were merely philosophies and perspectives, rather than hard, concrete suggestions like “save 10% of your income”.
Though maybe not that surprised, since this is consistent with my belief that financial strategies are better than financial plans. Numbers still matter. They matter a lot. But I think the motivation behind them matters more. In any case, I hope the advice is valuable and resonates with 20-somethings and 30-somethings alike.
1. A little matters a lot.
If you can put another $10 towards your debts, do it. If you can put another $10 towards your savings, do it. In a decade, a mere $10 per week ends up being more than $5,000. To say the least, $10 goes far — and this is true with savings AND debt. The most powerful thing about money in your 20’s is that it has the rest of your life to compound. Use a little money to make a lot of changes in your life.
2. Travel spending doesn’t have the ROI you think it does.
Spending on travel usually gets a free pass as far as expenses go. There are viral photos that read “Travel is the only thing you can buy that makes you richer” plastered all over the internet by people that don’t know what the stock market is.
I traveled a decent amount in my 20’s, but not as much as I thought I would. However, the only thing that surprises me is how little this has actually mattered. Invest in the right adventure for yourself, ignore what everyone else is doing.
3. One of the most powerful things you can do with your money is give it away.
With your inbox getting spammed by the latest offers from your favorite retailer, it’s easy to forget that your dollars can be used to do more than buy shit, they can make a difference. Make charity part of your budget. If you can’t afford to donate money, donate your time instead.
4. Buying coffee every day won’t destroy your finances.
It’s important to cut costs, manage a budget, and avoid temptation, but agonizing over minuscule details like bank fees or the cost of coffee is a distraction from where you can really make a difference with your finances. Don’t worry about spending $2.50 per day on coffee, worry about over-paying $100,000 for a house.
5. Always negotiate everything.
Negotiate prices. Negotiate pay. Asking for more at your job the single easiest way to add $1,000 to $5,000 (or more) to your annual income without doing any extra work. This will get you more money in your 20’s and the rest of your life.
6. Glamorous jobs are expensive.
Big paycheques, fancy job titles, and swanky offices are fun. They make you feel important and impress people at parties when you tell them what you do. They also cost a lot. Subtract the cost of your commute, professional wardrobe, the expense of dining out with clients & colleagues, and sanity from your gross salary and you are left with much less than you think.
Be wary of the price-tag of pursuing your dream job.
7. Gratitude is easier than earning more.
Being grateful what you have costs nothing. Anyone can afford it. Not everyone can afford to devote more time or energy to earning more money. When it comes to solving your money problems, start with your perspective first.
8. Never try to get revenge on the stock market.
Sometimes you will lose your money because of bad decisions. Sometimes you will lose your money because of bad luck. Pause and reflect before you jump back in.
The market is not an opponent your can “win” against, it doesn’t care if you get hurt, it will beat you dead. It will also make your richer than you ever would be without it, which makes it difficult to use it responsibly. You can master the stock market, but you have to learn how to do so.
9. Don’t buy into the lie that home ownership is the ticket to wealth.
Unless you’re buying a house with cash, taking on a mortgage is no different than renting, except you’re renting money instead of space. For most people, owning a home is an emotional decision rather than a financial one, and this clouds their judgment when it comes to the math. Renting instead of owning might be the best thing you ever do for your finances.
10. If you’re not making a payment, don’t look at your student loan account.
People who are stressed about their debts will frantically check the balances each day, sometimes multiple times a day. I remember I did this with my student loans, just to see how much interest accrued that day.
This is unnecessary agony and pointlessly stresses you out. It’s important to know how much you owe, but not up to the millisecond. If you’re not making a payment, don’t stare blankly at your account statements, wishing them smaller.
11. University is one of the easiest and most expensive time-wasters at your disposal. Approach with caution.
Going to school can give you the illusion that you’re being productive or good with your money when you’re not. You won’t blink at tens of thousands of dollars in tuition and fees because you’re “investing in your future”.
Calculate the real value of your degree, not the value of your hopes and dreams. Graduating into a recession with a low-earning degree and tens of thousands of dollars of student loans is an avoidable hell, but you have to avoid it early.
12. One of the best things you can do for your marriage is to not go into debt for your wedding.
Spending more money on your wedding does not make you more married. Have a good time, but don’t get carried away. Couples fight about money all the time. If you keep this out stressor out of your relationship, you’ll have a better shot at happily ever after.
13. The difference between what you want and what you have is probably a side hustle.
If you want to be debt free, own a home, raise a family, enjoy a comfortable retirement, and so on, chances are the only thing that’s stopping you is 20 hours per week and a little creativity. If you want to have more money, start working more.
14. Always try to be paid for your skills and talents, not your time.
You only have so many hours in a day. If you are paid by the hour, at some point, you will max out. You will not be able to see more clients. You will not be able to fit in more sessions. You will simply run out of time. So don’t make your time something you sell.
Sell your ideas, your expertise, your personality. But avoid selling your time, and if you have to, make it very expensive.
15. Passive income is the best income.
Dividend stocks work 24/7. They will earn money for you on weekends. They will pay you in your sleep. If you buy blue-chip dividend paying stocks in your 20’s, they will pay for themselves in your lifetime, and then continue to produce a free income stream forever thereafter.
Try to set up as many passive income streams as you can, and never working again becomes a tangible reality instead of a pipe dream. If you do nothing else for your money in your 20’s, set up an investment account that will pay you passive income for the rest of your life.
16. Be weird.
Most people are broke. They are over-worked, underpaid, in debt, and have no savings. Don’t take financial advice from them. Don’t adopt their financial plans or goals. Don’t do what they’re doing. Try doing weird things like saving 25% of your income or living without a car.
The more things you do differently than everyone else, the more likely you are to end up with a life that is totally different than anyone else’s.
17. Financial mistakes can be opportunities.
At 24, I had almost $30,000 of consumer and student loan debt and a low-paying part-time job. I was ashamed, overwhelmed, and flat broke.
Deciding to control of my situation and manage my finances led to the creation of this website, Money After Graduation. This website took me back to school for an MBA. The MBA got me a job at a start-up incubator. The start-up incubator taught me how to become an entrepreneur.
In other words, getting myself deeply into debt in my early twenties led to the ultimate freedom of becoming self-employed by age 30. When it comes to money in your 20’s and things go wrong, trust the journey. Worrying about your finances means that you care. Caring means that you will probably be ok.
18. Don’t let your parents help you too much.
If your parents are bankrolling a lifestyle you can’t afford, they’re doing you a disservice. Being broke is uncomfortable, but it’s good for you. It’ll make you work harder for the life you want, and when you get there, you’ll be more compassionate and empathetic towards those who won’t be able to do the same.
If there’s one thing you need to know about money in your 20’s, is to try to make sure most of it is earned by you.
19. Take big, calculated risks.
Any plan that requires you to save a fixed amount for any number of months greater than 6 will probably, at some point, be derailed.
Do not make 5-year plans. Do not make 40-year plans. Make 2-year plans that hinge on major achievements, but can be abandoned with little consequence if you fail. Your employer, your industry, and your life can change on a dime, and you have to be able to pivot to stay alive.
20. Someday you will die and your debts won’t matter.
Your assets won’t matter, either. Your lengthy and lustrous career will be a blip. Maybe the next two or three generations of your family will remember you, but after that, virtually no one will.
Enough time will pass that it will seem like you never existed at all. For this reason, it’s important to not get too hung up on any aspect of your life, but particularly your finances. It seems like a big deal, but money in your 20’s is actually a small matter in the entirety of your life.
The problem with money is that, when there is not enough of it, it’s all you think about. It stops you from enjoying the rest of your life. It keeps you from finding your purpose because you’re distracted by staying afloat. But once you have enough to sustain yourself, start looking at something, anything, other than your bank statement.
Your life has to be about more than money. YOU are more than your money.