13 Essential Money Habits to Master in Your 20s
Money habits to inculcate in your 20s.
I regularly see people cursing rich people and envying them in the same breath.
We can’t deny it: Money is extremely important.
It may not be your number one priority, but it is damn important to survive.
Money can’t buy happiness. But it can sure as hell solve a lot of problems! — Robert Rolih
Our 20s are usually a time when we don’t have too many responsibilities on our backs.
So inculcating good money habits during this time will make you ready for the next 40 years of your life.
In this article, I’ll cover 13 essential money habits to master in your 20s (which will pay off across the next 40 years of your life).
#1. Pay yourself first.
We regularly pay our rent, electricity bills, EMIs, etc.
But how often do we pay ourselves?
Not nearly enough.
Why should we pay ourselves? Does it even matter?
I know questions like this may be popping into your mind, and it is quite obvious.
It is all because of the mentality we’ve developed since childhood. From childhood, we’re taught to get a job, take big home loans, and pay them until retirement strikes. This is where we fail.
By doing this, we’re becoming slaves to money, not owners.
George S. Clason says in his book "The Richest Man in Babylon": You can only build wealth if you learn to pay yourself first.
Paying yourself first directly opens multiple opportunities to save and grow your money.
This can involve:
- Buying good finance books
- Buying good courses on investing
- Taking mentorship from an expert, etc.
#2. Track your savings.
Keeping track of your savings is extremely important. If you keep spending recklessly, you’ll lose motivation and abandon investing in yourself.
Here’s how keeping track of your savings will benefit you:
- It limits your spending habits.
- You’ll have a clearer picture of budgeting.
- Keeps you prepared for emergencies.
- Accountability.
Tools to track your savings:
- Using Spreadsheets in Microsoft Excel or Google Sheets.
- Personal finance apps like Mint and Pocket Guard.
- Budgeting apps.
- Tracking printables
#3. Start investing.
If you don’t find a way to make money while you sleep, you will work until you die. — Warren Buffett
The very first habit you should inculcate in your 20s after saving money is "Investing".
A few direct benefits of investing are:
- Beats inflation.
- Great source of passive income.
- Tax benefits.
- Financial independence.
- New opportunities.
#4. Stop using credit cards.
Credit cards are the worst investment that you can make. — Mark Cuban
Experts suggest that you shouldn’t even keep a credit card with yourself, as it urges you to make a purchase.
Yeah, I know it can help you in an emergency. But that, too, is a trap.
Here’s how credit cards are a trap:
- High interest rates on loans taken.
- Negative impact on your credit score.
- Gives a false sense of purchasing power.
- Promotes impulsive spending.
- Hidden fees and penalties.
- Leaves a high financial burden.
#5. Set financial goals.
Setting financial goals is the first step to building more wealth.
Keep track of your savings, which fall under this category.
A Few Benefits of Setting Financial Goals:
- Financial discipline.
- Financial security.
- Better awareness about money.
- Helps you build healthy financial habits.
#6. Paying bills on time
People often delay paying their bills, thinking that they will pay them later.
But if that later never comes, it puts you under a huge financial burden.
Credit cards reduce your credit score. Paying bills on time improves your credit score.
The best thing you can do to pay bills on time is to make "auto-payments".
It hardly requires 10–20 minutes to set up everything, but it keeps you safe from any mistakes and eventually reduces your financial burden.
There are multiple apps on the market that can help you set up auto-payments.
#7. Avoid impulse purchasing.
What is impulse purchasing?
It is the act of buying something based on an impulse.
Example: Buying a new iPhone just because you found some new features in it.
How to Avoid Impulse Purchasing:
- Identify triggers.
- Avoid shopping when you’re extremely happy or sad. Ask yourself, "Do I really need this?"
- Avoid browsing the latest deals and offers.
- Don’t keep credit cards for yourself.
- Unfollow brands.
#8. Use the 5-3-2 Rule.
It refers to investing 50 percent of your money in your core investments, 30 percent in growth investments, and 20 percent in speculative investments.
The rule is applied to only investments, but you can even apply it to your budgeting.
- Keep 50 percent of your money for your needs and necessities.
- Keep 30 percent of the money for your desires.
- Keep 20 percent of your money for your investments.
This helps you master your money in every situation.
#9. Increase your income sources.
Covid-19 was a reminder for many people who used to rely on one income source.
You can lose your job at any time. And we live in the digital era, where tools like ChatGPT are ruling the world. So, get ready for the worst.
Here are some benefits of having multiple income sources:
- Financial stability.
- Increased earning potential.
- Financial independence.
- Opens the gateway to entrepreneurship.
#10. Avoid inflating your lifestyle.
When people receive high job packages or get promotions, they increase their expenses, which over time pushes them into the same trap.
While increasing your expenses, you should ask yourself, "Do I really need this, or am I doing this only to look rich?”
Understand that there is nothing wrong with wearing luxurious clothes or buying expensive cars.
Everyone wants to fulfill their desires in this lifetime, but you should be earning enough money for it.
Don’t push yourself into big loan traps at a young age. Instead, focus on increasing your income sources, keep evolving yourself.
When you think you’ve reached the point where you think you’re earning enough money, go for luxury.
#11. Make your online purchases in Incognito Mode
Have you ever wondered how Amazon and Walmart recommend the exact product you like?
This is the power of data.
These companies have your data. They know your interests, preferences, and even your dislikes.
You may be wondering how. Let me explain.
When you visit a particular website, it asks you to accept cookies.
These cookies unknowingly collect your data and send it to the company databases, where multiple data scientists work on it to create the best possible recommendation system for you.
So this is how it works. And it affects your judgment when you’re shopping online.
That’s why I recommend that you buy anything in incognito mode to avoid falling into these traps.
It may not be convenient, but at least you’re buying items based on your own terms instead of following a recommendation system.
#12. Start diversification.
The best way to grow your invested money is through diversification.
What is diversification?
It is the act of diversifying your portfolio across different investment types.
Example: Mutual Funds.
Instead of investing in one company, mutual funds allow you to invest in multiple companies with the same portfolio.
It directly reduces the risk of losing your money, as it avoids speculation.
As Warren Buffett says, "Don’t put all your eggs in one basket."
#13. Don’t get involved in "get rich quick" schemes.
The internet is flooded with overnight-rich schemes.
People usually fall into these traps because of their increasing money needs in recent times.
A scheme promises you will get rich soon and without much effort.
You will often see this on Facebook and YouTube ads, where a particular individual will tell you "how I earned [x amount of money] in [x amount of time]."
I am not saying every ad is fraudulent. Some are genuine, too.
Here’s how to detect a fraudulent get-rich-quick scheme:
- Unrealistic promises.
- Creates pressure to act quickly.
- Lack of structure and information.
- Uses unauthorised sources.
So, these are some essential money habits to master in your 20s.
Thank you for reading! :)
If I missed something, then you can definitely give a suggestion in the comments.
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