Adopt These 7 Personal Finance Habits in Your 20’s

Are you among the student turned professionals that fear about your financial stability. Do those frequently appearing investment advertisements confuse you between saving for retirement vs genuinely enjoying your 20’s?Are you among the common Indian youth with struggle with understanding complex financial terms like a portfolio, equity returns or asset allocation and are afraid your personal finance habits are not smart enough to make you rich quickly.

Are you really scared of how to trust those financial experts who are non-slopingly shouting for next upcoming economic collapse that might wipe out all your savings?

If it is that so, you are really just worrying too much. Life is a marathon, not a sprint.

Why Financial Investments should not be your prime focus in 20’s

Outreach of social media platforms and internet has allowed financial institutions to marketize their products to such an extent that every single website tells either to “Save for retirement” or “start investing”. Although, it is needed to have investments, what they often try to hide is how much is required, This has made people think they have to aggressively invest in whatever comes their way else they will miss out their financial security.

What should this decade mean to you?

As a first-time employee, the vital thing you need to understand is that you have almost a decade ahead of you to explore and learn experiences without the burden of responsibility. Habits that you adopt in this decade might last long( even for your entire life), so you need to explore more before you decide what’s best for you.

Also if you make mistakes, take that as learning because you will always encounter new opportunities to start out fresh.

When it comes to shaping your financial life some of the most advantageous factors that you have in your 20’s are time, compound interest and freedom.

On one side, your small contributions at the early age do grow exponentially latter in your life with the power of compound interest. Doing things allow you to explore your interest and define what personal and professional milestones you seek to achieve in your life.

When you’re in your 20s, it totally makes sense to weigh short-term goals more heavily than retirement”, said Douglas Boneparth.

That’s not to say you shouldn’t be saving for retirement — you should be putting in at least some money aside, but you should also not lose focus from experimenting and gaining experiences in multiple domains.

Many financial experts have a hard time defining a definite line between how much to save and how much to consume. However, what they all agree on is finding good money management habits and exercising them consistently.

Even though you are young enough to have fun, you need to lay the foundation for what kind of lifestyle you want to have in the future.


How should you get started? Here are seven money management habits that you need to set in your daily routine so that it sets your investments on the right track for your future:

1. Start educating yourself about Personal Finance

Even though money plays a very significant role in shaping our lives, financial education not being a part of any school syllabus is an unfortunate thing. Also, most people do not like to talk about it in the open.

Books are the best way to educate yourself, followed by other sources like personal finance blogs (like this one) and audio podcasts.

If you don’t know why you need investing, then you won’t be investing at all in the first place, would you? If someone says you need insurance, and you don’t know why you need it, either you will not buy insurance or will have any insurance but not the one you need.

If you really want to understand why you can’t depend on the government to look after you, you should start with Robert Kiyosaki’s famous book “Rich Dad Poor Dad”. This book personally helps me understand why many government organizations do not focus on efficiency but just hiring more people.

Learning about how to manage money efficiently is not any conventional textbook course that you can cramp up a night before the exam and vomit out the next day. These are really about learning lifelong lessons what many other people did in their lifetimes and why they did that. What they learned and how knowing the same will help you as well.

By understanding even the basic financial concept, you can be well equipped to take all your financial decisions rather than have to rely on your broker blindly. Although if you do consult your financial advisor, you need to understand that things going south does not affect him but only you and your family.

The person who will be most responsible for your money will always be you, and so you need to educate yourself as much as possible. Not understanding the actual impact of one’s financial decisions and blinding relying on their financial advisors is often what costs people more than anything.

Start with the book named Rich Dad, Poor Dad” (Amazon link here) written by Robert Kiyosaki and “The Richest Man in Babylon”(click here for kindle copy) which help you understand why you need investing. Read “Unshakeable: Your Financial Freedom Playbook” by Tony Robbins why you can’t blindly trust your financial advisor and how much do you lose if you still do it.

Practicing all the steps mentioned in these books (any many others) helps you take the right steps to empower your future in the long run.

It’s never too late to start educating yourself about the world of personal finance, and it’s as easy as reading through free online content about any topic. But if reading those books make you sleep (I did have the same trouble initially), try video or audio podcasts which provide the value.

Many finance bloggers have started finance podcasts and talk about various issues like investing, getting out of debt, creating financial goals and generating passive income.

Being a financially literate person is not a do-it-in-a-day course. Financial Literacy is a continuous exercise
that needs to be refreshed with new knowledge all the time.


Create a budget and making quality purchases

Budgeting is the next best thing you need to form healthy financial habits in your life.

Responsible spending is the foundation for financial stability. It does not matter how much you earn if you don’t save anything you will never be wealthy. It is your savings that make you rich.

Tracking all your expenses helps you see where your money is going and how much. You could be spending more than what you earn. Understanding your cash outflows enables you to realize your money habits and traits. You are not on a correct track if you are spending more on non-essential items or things that really do not provide value they should. Few examples would be like eating out too many times a month or purchasing a new cell phone each year or two.

Instead of dining out regularly, can you stick to eating at home and cut back on those expenses? Are you regularly shopping for items that you do not use after a few months and maybe do not need it. You can optimize your costs which in turn form excellent money management habits and help you create an efficient system.

By sticking to a well-defined budget, you save yourself from the grief of overspending and falling into a credit card debt.

A budget is a way of being intentional about the way how you spend and save your money. With budgeting, you control your money and not your money controlling you.

If you spend less than what is coming in, the rest contributes to achieving your other financial goals. Make informed, purposeful decisions, and allocate your money in the best possible way to address expected and unexpected costs.

By having a fixed plan, you now have to focus on buying quality purchases only (or service) that would serve you more than what they are being paid for.

Bonus Tip: Once concurring your financial Budget, you should look to budget your time. That will help you 


Eliminate existing debt and focus on not acquiring new debt

The worst thing you can do for yourself in your 20’s is to get a ton of debt. Not only does having debt makes you work for money, but it also forces you to pay your bills before you can do anything for yourself.

Although most of the millennial these days have to start with a high college debt already on their back, it does not mean you go and find new ones. One of the easiest ways to acquire new debt is by using your credit card inefficiently.

Buying all your stuff using a credit card is a good thing, but if you start using in inappropriately and buy more than what you can pay for, you are bound to fall out. While you may think that a little credit card debt won’t hurt, this is all it takes to start a new habit.

Once you start paying 100-500 each month as credit card interest, it encourages you to spend more than what you can afford. And soon, those 100 turn to 1000’s, and after a few years your credit card could be eating up all your saving options.

So how do you eliminate existing debt fast? Simple, if you already have an existing mortgage (s), you need to list out them and identify which one is charging highest Rate of Interest. Now create a “get out of debt” action plan and pay them out.

So if your EMI is Rs 2000, try and see if you can pay double than that (anything more than Rs2000 if not precisely double). Now anything you pay more than your EMI is actually being paid directly as the principle. This would mean less interest next month, and hence you eliminate your debt at a much faster rate.

You can apply this process not only to eliminate credit card debt but even car loan or home loan.

So once you understand how interest kills your saving, the next time you want to buy something without hard cash, you calculate how much interest you will be paying. With this process you can compare does your purchase justify the extra money you will be spending as interest? Will it bring more value or stress? 


Have insurance options and emergency fund

Sh*t happens! And no one can prevent it. But its impact can be minimized by effectively planning and buying correct insurance. Instead of taking on high debt to pay for unexpected expenses, it is always the best option to waste few hundreds each year on insurance premiums.

If you do not plan to pay a monthly or yearly premium for services that you think you will likely ever use, you open up yourself to pay much more as penalties in case they occur.

Also, you should have an emergency fund that you can use in case of emergencies so that you do not need to touch your traditional investment options. Make it a goal to set aside funds that can cover your 3-6 months of necessary living expenses.

These funds should be stored in such a way that regaining them does not take more 2-3 days.

This money also helps to maintain your living in case of unexpected layoffs or economic changes. If you have started working after 2008, high chances are that, nor you or anyone in your friend circle might have faced the real consequences of sudden layoffs.


Start a retirement account with the small contribution.

There is no perfect line on how much you need to invest, but once you have stored emergency fund and have a right action plan to pay high-interest credit card debt, start a retirement account. Start contributing the bare minimum of 3-5% of your total income towards your retirement.

Why contributing mere 5% enough? Yes, Because time is your best ally right now and compound interest has enough power to grow even that small contribution exponentially. The only thing it asks for is an early start. Starting early with retirement pays off big time down the road.

So if you even start with a monthly saving of 2.5K at the age of 23, i.e., 30K per year, you will be contributing a total of 1,290k (2.5K x 12 months x 42 years) till the age of 65. Do you know how much will your retirement account have? Even if we take an average 12% of ROI, that will be whooping 32,432k. That is a 25x return on your initial investment.

What if you start the sage at the age of 33. In that case, your retirement account will only hold to 10,272k, i.e., only 7x on investment. To match up with 32,432K, you will have to contribute to 7.5K. That is triple the contribution for anyone starting 10 years later.

Why only invest 5% and not 15? Well, nobody is stopping you from investing 15%, but it would pay off in a far better way if you spend that 10 % towards funding yourself. Learning is a constant thing. By investing into learning other new hobbies, or attending events, you get to increase your overall income at a much faster rate. Better invest in a side hustle that can generate passive income like creating a blog, taking marketing courses.

Compound interest is considered the eighth wonder of the world, both by  Albert Einstein and Warren Buffet. It is the type of wealth you accrue when the interest you earn on your savings or investments begins to compound on itself, i.e., interest contributes more than you towards your wealth. If you want to be financially free in the future, then you have to harness this power and put it to work. If you don’t, you’ll miss out on gains you can never get back.

Bonus tip: There is no sense investing into a PPF, RD, FD account that pays <9% while continuing with paying 18+%  on credit card. You won’t fill your bucket if water flowing in from tap is slower than what is going out through broken holes.


Start a side hustle to earn more.

While investing at an early age helps everyone building great wealth, it doesn’t make it an answer to every problem.

While using some of your saving and free spare time (maybe around the weekend), you should start looking into growing yourselves. This could be anything like finding a new hobby or proofreading resumes. Learn something new and make it a money making asset.

An easy way to increase your income is by putting in more hours working on a side hustle.

How does this help? Apart from getting more income, it allows you to have diversity, revenue coming in from multiple sources. If your primary job fails, you still have your side hustle to take care of your needs.

Finding some free time and starting a side hustle is a way to generate passive income assets. If you do not have any binding responsibilities at this time of your age, you can spare 1-2 hours a day and focus on doing something that interests you.

This is the particular section that you can take as an exploration. Do stuff that you think if you would like, switch back to something else if it does not work. In the end, you will have hobbies (yes, they could more than one) that pay you in return and also are your escape portals from day jobs.

Finding good mentors and mentees

People really do not like to talk about money habits in India. Not just that, most of us do not wish to have any constructive discussion on many topics. Find good mentors in any fields you want to be successful.
Let them cough you to excel. Not only learns from there success, but also from failures. Network, go to connecting events or seminars to talk to them. These experiences may not earn you but will help you save much more money.

Do the same with others. Help your mentees do things that you have already done.



Now, these are not the only habits that form strong financial fundamentals, there are certainly more. Let me know in comments which other money habits that help you develop good money making habits.