When you grow up, what do you want to be? Maybe you’ve wanted to be a doctor and help people. Perhaps you aspired to be a teacher, a police officer, or a truck driver. But have you ever wished to be financially secure in your 20s?
We spend a lot of time focusing on our careers, love interests, and big houses, but we often forget about the one thing that keeps all these things afloat – money. So often, we overlook the one goal that allows us to go out and accomplish the rest of our bucket list. It’s time to start planning for your financial future because the future begins now!
This article will look at ways to be financially secure in your twenties.
How much to save for rainy days?
Even if you are the best budgeter in the world, things can go wrong. Whether the car breaks down or the washing machine breaks down, you are unlikely to be willing to pay for a new car, let alone months of unpaid leave. It is why you should have a rainy-day fund. Saving money to deal with financial setbacks is critical to your financial security.
You typically need to set aside 10-20% of your monthly paycheck. Besides that, setting a goal is another way to save money. Rather than budgeting a fixed amount each month, save what you can. Some months you’ll be flush with cash and able to save more, while others may be a little tight. You’ll be working towards financial security as long as you work towards your end goal.
Which comes first: Paying off debts or Investing?
Is it better to pay off your debts or invest cash for financial security? Traditionally, experts have always advised paying off all debts before investing. However, this logic is outdated. It does not consider student loans or alternative investments. So why not combine the two?
Before investing, make sure to pay off any high-interest debts first. Even if you haven’t paid off all your debts, funding is still an option once you’ve paid off your high-interest loans. The faster you earn money from investments, the sooner you can use that money to pay off the remaining balance.
Alternative investments have grown in popularity. Compared to traditional banks, which offer 1-2% returns, new investments can offer up to 5-7% interest.
For example, peer-to-peer (P2P) lending can provide 5% returns over 1 to 5 years. If you free up higher-interest loans and invest 5,000 dollars over three years, you could expect to recoup around 5,385 dollars, which could pay off your debts.
The sooner you invest, the more money you can make. You can eventually earn interest, so pay off high-interest debts first, and don’t be afraid to start investing before you’ve paid off everything.
How to diversify & increase your earnings?
More than just increasing your income, diversifying your income streams ensures that if one fails, you’ll have another to keep you afloat. There is no one-size-fits-all strategy for income diversification, so consider your options and decide which one is best for you.
For example, create a side hustle for yourself by selling products or services. You could make organic candles to sell on Etsy or teach piano to junior high students. Both business ventures will take time to develop, but they will provide a healthy source of income in addition to your monthly paycheck.
Investing is another effective way to make more money. Do you put all or just a portion of the investment? You need to determine how much you’re willing to risk based on your debts, savings, and disposable income.
Put what you can afford into stocks and shares or a peer-to-peer lending platform, and you’ll have a passive source of income with a guaranteed return. Use your budget to determine how much money you can save each month without negatively impacting your quality of life.
Investments can take a long time before you can access your money. That’s why it’s important to diversify not just your investments but your assets as a whole.
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