You may feel young, wild and free during your 20s, but in the blink of an eye, reality will hits you fast and hard with all the financial commitments which may include getting married, getting your own house and having children. Then suddenly in your 30s, you realized that you are halfway to retirement, yet there are far too many outflows with too little inflow of income to cope with.
Thankfully this scenario can be avoided, but every financial decisions you make now will be crucial. Here are 7 most important financial lessons that you should master early on, ideally before you turn 30.
1. Forget about Everyone can Fly
No doubt that the flight ticket is cheaper than ever, but just because it is affordable does not mean you should do it. I am not saying that you should not go for vacation at all, but rather make it a delayed gratification, where you resist the temptation for the immediate reward and wait for a better reward later. Travel is in everyone's bucket list nowadays, but instead of spending away all the money on vacation, plan and save for it according to your affordability with other financial goals taken into consideration, which leads us to the next financial lesson.
2. List Down Your Financial Goals
One of the 7 Habits of Highly Effective People written by Stephen Covey is to begin with the end in mind. In order to prepare for your financial future, you should have a clear written list of all your financial goals. Most often than not, you probably have not figure that out in your 20s. But don't let it stop there, take time to sit down and think about them. Write them down and plan how to make them a reality so that you have a clear vision of actually achieving them. You are less likely to achieve any goal if you do not write it down and create a concrete plan.
3. Stick to a Budget
Everyone knows the importance of having a budget, but how many of you, especially in your 20s, actually stick to a budget with discipline? So, with all your goals written down, the next thing to do is to understand your current financial situation and the best way to find out is to have a budget to know where all your money goes and start to allocate where each dollar you earn goes. Knowing where you spend can limit yourself from over-budgeting too, such as impulse buying especially when there is promotion going on. Allocating at the right place is essential as well because you want to fully utilize your money, making sure your money works harder than you.
4. Build a Strong Emergency Fund
One of the first thing to allocate in your budget is to build a strong emergency fund. As a rule of thumb, you should have an emergency fund of at least 3 to 6 months of expenses. The number of months of expenses will be depending on your comfort-ability as well as how fast you are able to get a new job in your particular field. In other words, if you happen to lose your job, at least you are able to sustain for few months. Generally, you do not want to be over saving, as letting your hard earned money to rest in bank while you are working hard may not sound like a good idea.
5. Be Prepared for Unforeseen Circumstances
Besides of having a strong emergency fund for unforeseen circumstances (which may not be enough), another smart way to be prepared is to have risk transfer strategy. Transfer the risk of loss to the insurer through insurance, be it for yourself, your family and even your assets. Imagine if you had an car accident without insurance, medical expenses (maybe repairing cost too) are going to burn a hole in your pocket. In your 20s, probably you are feeling strong and invincible, where illnesses are unlikely to come to you. But the real "sweet spot" for buying coverage is actually in your 20s when you are still qualified with good health condition at a cheaper rates.
6. Best Time to Begin Investing is NOW
For Malaysian, I am sure you are familiar with this peribahasa (proverb) - "Sedikit-sedikit, lama-lama jadi bukit" which literally means bit by bit, long enough it will pile up like a mountain. So the keyword here is "lama-lama (long enough)", period of time is vital especially with the compounding interest effect. So the best time to start is as soon as of now! Many misperception on investing is that you can only start to invest when you are rich, but the fact is, it is the opposite way round! Think of any self made billionaire or millionaire, how many of them are not investing to get them richer? Best of all, you can actually start to invest as low as RM100!
7. Don't Forget Retirement!
Now you just started to work where retirement seems like a long way to go. You might even be thinking that it is more than enough as a small part of your income has already been deducted for EPF retirement fund. But here are the cold hard facts, your salary probably just about the same compare to those who started to work 10-20 years ago; your annual increment does not catch up with inflation where cost of living is ever rising, yet our lifespan is getting longer with medical advancement! Many simply cannot afford to retire especially in the developed country, where the retirement age increase gradually once every 5 years according to the increase in average lifespan. So to ensure your wealth span outliving your lifespan, you just gotta START NOW!
All in all, 20s are the most significant years in everyone's life. So be sure that you master all the lessons above to make more right financial decisions so that you do not have to regret later in life. Plan and implement as early as possible will only bear sweet fruits. After all, failing to plan is planning to fail!