5 Money Moves To Make In Your 20’s For Financial Independence

As its only 6 months away from leaving my 20s for good, I have begun looking back at the past 10 years and reflecting on some of the good things I have done with my money and some of the bad. Personally, in the past few years my understanding on how to invest and manage my money correctly has massively improved. But that can’t help me stop to think about some of the bad moves I made earlier on. In this post, I’m going to give you 5 Money Moves To Make In Your 20’s.

1)  Invest monthly into index funds

When it comes to money moves to make in your 20s, I can’t even begin to start with how important it is to do something like this. Whilst stocks and shares are always the things making the headlines because of massive gains and drops, index funds usually get forgotten about. But in my opinion these are the key to building long term financial freedom. Also, if you invest in the right index funds, they become extremely low-risk and take little to zero upfront research to pick.

What is an index fund? Basically, an Index Fund is a portfolio of stocks or bonds designed to mimic the composition and performance of a financial market index. For example, let’s say you wanted to buy a share of APPL (Apple) stock, here you are buying 1 share of 1 companies, whereas with an index fund, you are buying a small bit of hundreds of companies. This of course makes the risk a lot lower because for you to lose money with an index fund, you would need the majority of the companies stock prices to drop. Where as, if you just invested in 1 company, if their stock price drops so does your money.

Now why did I say monthly? This is all because of one reason and that is called Compound Interest! One thing about the stock market that not many people understand is that it’s not actually about how much you invest, but more about for how long you stay invested and keep your money compounding.

Just take a look at this brilliant example provided by the Federal Reserve Bank of St Louis. As you can Investor 1 started investing at 25 and only invest $5000 a year until the age of 35 and then stopped forever whereas investor 2 started 10 years later at 35 and invested for an additional 30 years until the age of 65. What you can see, despite stopping 20 years earlier, investor 1 still made more money, simply because their money had compounded for a longer period of time.

2) Pay off any debts

High interest debts can be one of the biggest hurdles when it comes to stopping you from achieving financial independence so it’s best to focus on paying it off sooner rather than later. My full recommendation is to set a larger chunk of your budget aside and work on paying the highest interest ones off first and working your way down the list.

The only debt I would say to not worry about as much is your mortgage if you have one. This is because typically, house prices will go up over time which will technically cancel out the interest and of course, a house isn’t exactly something that you can pay off in just a matter of weeks.

I am fortunate enough to say that I personally only pay for a mortgage and have eliminated my other debts. One thing I really noticed after achieving this is  the reduction in stress when it comes to paying bills. The more people you don’t owe money to each month the less the feeling becomes that you are no longer living pay check to pay check.

 

3) Invest in yourself

Investing in yourself is something I definitely wish I did a lot more during my 20s. This is normally a time when your commitments are little to none and you should be fully maximizing this time to work on yourself. Some of the things I fully recommend doing is investing into  mentorship(with the right people), buying books, travelling and working abroad, staying fit (something I didn’t do). Just generally taking a few more financial risks than what you would do later on in life when you have more responsibilities.

Learning new skills whether they are business based or just general life based will pay off 10X. In the future and you will thank your earlier self for doing so. One platform I fully suggest for learning a wide variety of skills is SkillShare, a super cheap online course library (the Netflix for online coaching) where you can learn pretty much anything and if you click here, you can get a 14 day free trial.

4) Stop buying dumb stuff

A problem I see with people in their early 20’s is their need to be keeping up with the Joneses and don’t worry, I was one of them. I see so many people buying fancy new cars, ridiculously expensive clothes and if that really makes you happy then fair enough but for me, there is so much more you can do with that money.

I personally feel into this trap when I was 21 where I bought a brand new car to impress my colleagues at work and I can pretty much say, after around 3 months of driving it I was bored and fed up. I actually mentioned the full story in a recent blog post I did, click here to see it.

But put basically, I spent around £11,000 on a brand new car and all I can think now is where I could be if I invested that into a low risk index fund like I mentioned in point 1. That is almost 9 years of investments and compound interest I lost because I wanted to look cool. It’s just simply not worth it.

5) Develop Good Money Habits

Whilst you’re in your 20s, start to think about your relationship with money and what good habits you can build that can last a lifetime. The obvious one for me was creating a budget and fine tuning it over time. Split your money into different pots such as Bills, Fun, Savings & Investments to be able to get a clearer picture on where your money is being spent and how much of it you have left.

I created a YouTube video sharing my exact budget plan and how I divide every single piece of income that comes into my accounts. You can check it out below:

I personally think if you make any of these money moves in your 20s then you will be well on your way to achieving financial freedom. If you enjoyed this post, then please feel free to check out some of my other personal finance posts out on the blog.

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