Guide to Personal Finance in your 20s

The Basic Guide to Personal Finance: How to Save Money and Enjoy Life At The Same Time

Do you have a clear picture of where your money is going? Are you spending on things that are important to you and not just unnecessary purchases? Do you know how much you should be saving and if your current savings habits will get you there? 🤔

If your answer to any of these questions is ‘no’, then continue reading my friend! The good news is that personal finance is something that almost anyone can learn. The only problem is we’re not taught anything about it early on! Knowing some basic concepts can go a long way toward helping you build a secure future.

In this article, we'll discuss some basic principles of personal finance and some actionable tips on how you can start your journey to understanding your personal finance and then move step by step towards financial freedom!! 

So, let’s get started today! 💪

The Importance of Personal Finance ✅

First, let’s talk about why you should even care about personal finance. 

Fact of the matter is that we live in a society where money plays a vital role over every aspect of our lives. It can single handedly make, break, or create opportunities from scratch. Your personal finances affect your overall mental and physical health, how much time you will have to devote to friends and family, your ability to pursue your passions, the quality of your relationships, your capacity to contribute to your community and the kind of legacy you will leave behind.

Story time: When I got first pay cheque, I had soo many questions: Do I spend all of it or save it or invest? But I didn't even know how much to invest or how to invest? But I also thought: "Or maybe I could wait for the next pay cheque to use it on the adulting investing stuff and use this one as I want? 😊"

Hahaa but that in itself turned into a cycle. For a few months, I kept pushing on the idea of using "That next pay cheque" to save or invest 😅

Right now, I see so many of us in our 20s getting our first jobs and also having the same questions! I remember during my university days I loved going out with friends at least 4 days a week, until a point came where we had to limit myself because it drained all of our money! 💸 We were spending beyond our means and constantly in debt with each other. Long story short, I think most of us learn things the hard way, but personal finance isn't something you need to start learning only when you're broke or have too much to not know how to spend or have too less to not understand how to earn more, instead it's a life-long process that we should incorporate in our daily lives so that it reflects positively on our monthly expenses, annuals savings and investments etc. You get the point, right?

In short: taking control of your finances means taking control of your present and your future! So make sure you take it as seriously as you can, and as early on as you can!

Live below your means 🙏

Most people like to live lavishly, meaning they sometimes can end up spending more money than they have. This can lead to a whole host of problems, from being unable to pay your bills to rack up credit card debt. So how do you approach this problem?

What you can do to counteract this is to live below or within your means. In other words, spend a certain proportion of your earnings. This will give you extra money to save and allows you to pay off any debt you may have. This doesn’t mean you have to be poor or spend on anything at all, though. It just means you have to prioritize what’s important and spend your money on the things that matter to you. You can also consider getting a side hustle to bring in some extra money. This is a great way to supplement your income and help you live below your means.

I’ll also mention another strategy that will make this easier for you, continue to read till the end!

Track your spending habits 📊

Tracking your spending habits can help you figure out where your money is going. It can also give you a baseline for how much you should be spending each month on different categories, such as housing, food, transportation, etc. When you track your spending, you’re basically noting down every single expense you have. This can include things like your car payment, your utility bills, groceries, your cell phone bill, your student loan payment, etc. No expense is too small to record because even pennies add up over time. 

Everyone has their own preferences on where (and how) they track their expenses. I like to use a Google Sheets template for budgeting, and I update it at the end of every day. And guess what, it's FOR FREE!! You don't need to go around buying a fancy budget planner on Etsy. You can find this template on the Google Sheets template gallery. It’ll look something like this: 👇

Some people like to write it down in a notebook and have a look at it periodically, and that’s fine too! The aim is to find a possible medium which suits you and stay consistent to it. 💪

It’s also important to know the intention of tracking your expenses! Some people do it to get a general idea of their expenditure and cut it down wherever necessary. Other people like to record exact numbers and set specific timely goals to improve their spending habits. Again, the ball is in your court! You see what works for you and go ahead with it. 

All of this will give you a good idea of where your money is going and if you have any potential areas where you could cut back. It will also help you determine if you’re spending above or below your means. We'll also cover budgeting in more detail in the future.

Plan for emergencies 👀

Emergencies are things like a sudden health issue, a vehicle breakdown, or a major home repair. These kinds of events can put a serious dent in your budget if you don’t have enough money set aside to deal with them. To give yourself some peace of mind, and to avoid going into debt, you should plan for these emergency expenses. 

You can either set up another bank account where you deposit a certain amount of money every month for your emergencies, or you can purchase an insurance plan according to your requirements! 

Pro-tip: Make sure you do proper homework before purchasing an insurance plan. Take all considerations and get a thorough breakdown from the company itself. Sometimes there may be legal complications or personal/religious conflict in certain insurance plans, so do your due diligence! 

The 50/30/20 rule

Ah yes. Time for the infamous 50/30/20 rule. This rule is a guideline you can use to help you figure out how much you should be spending, saving, and/or investing each month. And of course, this isn't a one size fits all approach, even for the same individual, it might not work in all phases of life, so see what works for you.

The rule is simple. It suggests that you should spend 50% of your income on your needs (rent, utilities, food, etc.), 30% of your income should go towards your wants (vacation, new shoes, etc.), and 20% should go to saving or investing. 

This can be applied to almost anyone and will help you get your finances in order. This rule is a good starting point, however you should adjust it based on your own situations. For example, if you are paying off a large amount of debt, you should probably be saving more instead of investing. If you don’t have any debt, you may want to increase your monthly investment amount. 

This rule is great to give you a structure to deal with! It can also help you set and meet financial goals, such as buying a house, retiring early, or starting a new business in the future. 

Summary

With all of the information above, you should now have a good grasp on the basics of personal finance. If you’re looking to improve your financial situation and get your money working for you, the first step is understanding where it is going now. You can do this by tracking your spending, paying off any debt, and planning for emergencies. Once you’ve got your finances on track, you can focus on growing your money through investing. For most people, investing is not a once-and-done process. It is an ongoing pursuit that requires regular attention and maintenance. The more you can do now to prepare for the future, the better off you will be.

A recap of what we discussed: 

1- Importance of Personal Finance

2- Live below your means

3- Track your spending habits

4- Plan for emergencies

5- The 50/30/20 rule for budgeting

Comment below what type of content you would like to see next! 🙌