The 20s are the time to set your financial journey into play. This is because it is when most people are completing their studies and getting into their first job. Hence, this makes it critical to set your financial goals from this moment. this article will focus on the financial goals you should achieve in your 20s.
At this level, nothing much is expected of you rather than to ensure your financial processes and systems are in the right shape. This is because, during this time, there are a lot of distractions and excitement that come with making your first income. Without checks and controls, it could also be the beginning of your financial ruin.
It is also during this period that you have fewer commitments such as getting a family making it easy to have a lot of idle income. Hence, it is only wise for you to start good financial planning to hedge against the future when needs will be more.
One advantage you have in the 20s is the room to make mistakes. Don’t fear trying out new things as you can easily recover in case of failure.
Remember that decisions made at this age will have an impact on the rest of your life.
Let’s look at the financial goals you should achieve in your 20s
1. Get a savings account
Saving is the starting point of creating a successful financial future. There is no better time to do it than in your 20s. The goal of building your savings is to ensure you have enough funds to cater to emergencies and support your investments.
It is advisable to put your savings in an interest-earning account to benefit from the fruits of compounding. There are various ways to determine how much to save. Mostly, this is based on a percentage of your income.
You should save at least 30% of your income every month. In the long term, this becomes a significant amount that helps you undertake major investments. However, even if you can’t manage to do 30%, start with what is available. The key goal here is to start saving as soon as possible.
The best way to do savings is by putting the funds in a place that is not easy to access. This limits your ability to quickly access the funds. A key element for a successful savings journey.
The process of saving should begin immediately after you start earning.
2. Start Investing
When your savings start building up, investment should be next in line. There are various ways to invest. It all depends on what works for you. Some of the factors that determine your investment level include risk levels, knowledge, and amount of capital.
However, the goal when you are in your 20s is to start small. It is expected you are still starting and hence the income and savings levels are still low.
At this stage, you should limit yourself to investing in assets with low-risk levels up to a point where you have the advanced market knowledge and a bigger financial muscle.
Some of the areas you can consider investing in are money market funds and government bonds. Real estate is also a safer option. The only challenge is that it is capital intensive making it harder for beginners to get in.
However, most of these options have guaranteed returns either on a monthly or annual basis. They also don’t require a lot of your time and attention after investing making them suitable if you have a busy work schedule.
Investment is a long-term undertaking and hence, don’t worry if the returns are minimal in the early days. As long as you don’t stop, they will grow in the long term.
Another factor that determines your investment choice is income expectation. You should target those assets that offer the best returns but still are within acceptable risks.
Starting early investments gives you knowledge and experience. They are key assets in the future when you want to make major investments. That is why I said it is better to make mistakes in your 20s.
3. Improve your financial knowledge
Due to the changing nature of the financial markets and strategies, you should make it your goal to continuously improve your financial knowledge. This way, you become better at financial matters and it also makes it possible to recognize new and emerging opportunities.
Some of the ways to grow your financial knowledge include reading financial books and attending training and seminars.
Knowledge is an asset. Hence, the more you have, the better value you can create. It also helps you to stand out from the crowd. Again, this will come in handy as you grow older and your income streams increases.
4. Grow your career
As a starter, career growth is an important factor to consider. This is because it comes with exposure, flexibility, and more income. Hence, career growth is among the financial goals you should achieve in your 20s
This is also the right time to change your jobs until you get the one that suits you. Among the reasons to focus on career growth is the ability to earn more income. With more income, you can accumulate more savings and increase your investments.
Although career growth is a continuous process, you should not be hesitant to change your employer if there is no clear growth path. Some of the activities you can undertake to grow your career include expanding your education and focusing on strategic networking.
5. Get insurance
Insurance is a safety net that helps us recover from emergencies and losses. This makes it a necessary financial tool to have. Some of the most common types of insurance include insuring your assets, medical insurance, and life cover.
Some assets are capital intensive such as a house or a car. By insuring them, you minimize the risk of loss through losses such as a car accident or fires. Due to the cost of these items, they could send you a few years back financially in case of loss and without insurance. Medical insurance is also critical as from time to time, we do fall ill both in a minor and a major way.
Hence, with a medical cover, you are assured the medical bills are no longer a bother. Life insurance cover is a great way to protect those close to you if you are no longer there.
6. Budget your finances
Budgeting is a mandatory requirement if you want to achieve financial success. It enables you to allocate resources in the best way possible as well as keep track of your costs. Due to the limited nature of our income, the only driver to success is planning your finances optimally. This allows you to clearly understand your opportunity costs.
One key function of a budget is to enable you to plan your income spending. Among the most common planning approach is the use of the 5O/30/20 rule. This entails using 50% of your income to meet your needs. 30% should go to savings and the rest 20% to the wants.
This way, you are assured of a balanced and successful journey. Starting budgeting and planning in your 20s will go a long way in contributing to your financial success in the long term.
Budgeting also helps in tracking your spending enabling you to make the necessary corrections if and when they happen.
There are various budgeting and planning tools available online that you can use to help in this process in case you are unable to create yours. Having a budget is not adequate until you make it your financial bible. Follow it to the last plan.
7. Good debt management
Debt is a key factor when discussing financial goals. Thus, it will form part of the financial goals you should achieve in your 20s. Debt is important when well utilized but also a liability if mismanaged.
You should only get into debt with proper reasons and set out plans. Some of these include getting into debt to meet emergency costs, investments, or to finance your education upgrade.
Avoid taking loans for consumption purposes as this only leads to reducing your cash flows when paying them back. In the long term, less cash flow means you have limitations in growing your savings and investments.
You should also limit the use of debt to acquire depreciating assets such as a car or a phone. Instead focus it on appreciating assets such as real estate. The key goal is to make use of debt in getting you to a better financial position either in the short term or long term. By this, I mean using it to generate more income.
However, if you have to get into debt, ensure you pay it back as soon as possible. you should also ensure to negotiate on the interest rates. This way, you will have less to pay to mean you can channel the extra funds to other activities such as savings and investments.
Another approach is to stay away from things that could push you into debt. These include items such as credit cards and mobile lending apps.
Finally, ensure to pay your debts on time and fully. This prevents additional costs such as penalties and late and default fees. It also prevents you from getting a negative credit score that might affect your creditworthiness in the future.
8. Have a pension account
It is a fact that you will not remain 20 forever. Sometime, someday, you will have to retire with your financial needs intact. This is why it is necessary to start building your pension account as early as possible when you are still young.
This involves putting some of your monthly income into a pension fund. Mostly, pension funds usually invest your funds and pay annual interest. Hence, the more you grow your account, the higher the interest income.
Other than saving for your retirement, having a pension fund contribution has other benefits such as tax reduction on your contributions. In the long, these savings could run into millions. Hence, make use of these opportunities as early as you can as it is a great way to secure your retirement.
Some of the key factors to consider when settling on a pension fund include reputation and returns. This way, you ensure your contributions are not only safe but also offer competitive returns. Otherwise, there is no need to make contributions to a fund that has no returns.
This list presents some of the financial goals you should achieve in your 20s. However, this is not cast in stone as things happen differently to different people. Ensure if not all, you can implement some.
Having well-set out and planned financial goals helps with long-term financial success. Below is a recap of the financial goals you should achieve in your 20s.
- Get a Savings Account
- Start investing
- Improve your financial knowledge
- Grow your career
- Get Insurance
- Budget your finances
- Good debt management
- Have a pension account