Updated: Feb 11
So, you’re in your twenties, and you just want to keep living your best life. But you’ve got a feeling that maybe you should be doing a little more to, well, make a little more and get ahead.
The fact you’re even looking at this article suggests you’re thinking ahead, which is awesome. Perhaps you want to get out of the property rental scene and buy your first owner-investor property? Maybe you’re keen to save for something significant (like a car, a big overseas holiday, maybe even a wedding or a child)? Possibly you simply want to make every penny you earn work smart sooner rather than later and really maximise your wealth-building capacity?
Whatever the reasons, you’re probably already a step ahead of your mates just thinking like this so early on. As a result, you’re going to be many more steps ahead further down the track because you’re starting now, not in a decade or two when so many others begin to think about how to build wealth. So, let’s begin by looking at practical, achievable ways you can make the most of your finances in your 20s.
Budgeting in your 20s
Depending on where you fall in this decade, either you’re fairly new to receiving a regular salary, or you’ve a few years under your belt and probably benefited from a promotion or two. Maybe you’ve led a start-up, and you’re on your way to your first million. This is the first decade you’ve become a serious income-earning professional. Prior to that, you would have possibly just received pocket money from the folks or got an after-school job that earned you enough to have a good time or save up for some bigger ticket items. This is also the first decade whereby you’re either responsible for your own accommodation, food and expenses, or you’re living with mum and dad, but now they’re charging you rent. In short - you’re earning more than you ever have, but you’re spending more than you ever have as well.
The sooner you can get your head around money coming in and going out, the better placed you are to grow your financial literacy and make your dollars work for you. We love nothing more than sitting down with clients at the beginning of their careers and helping them understand cashflow and start budget planning. Learning how to budget in your 20s lays the foundations for life. You’ll be building wealth like a rockstar in the decades to follow. It’s important to flag that the B word doesn’t mean the end of good times. We can work with you so that once this is in play, you should notice very few changes to your lifestyle. However, you will notice your savings creeping up, up, up, and this will give you the power to make some really interesting, key wealth-building decisions (more on that in another article!).
Every other choice you make about finances in your 20s will depend on or be very closely linked to this first step. We can help you nail it.
Understand the importance of credit history
The moment you buy something on credit in Australia, an Equifax profile is created. This essentially monitors your ability to pay back the credit in the required time frame. Equifax assigns you a credit score based on your ability to do that. Here in Australia, that score goes up to 1,200. An excellent rating sits between 833 and 1,200, whilst a rock-bottom score is 509 and below.
Do not underestimate the importance of this score, as it sticks to you like glue, and lenders use it to help them determine whether or not to approve any loan applications you make. Right now, you perhaps do not need a loan. However, let’s just say a couple of years ago, you moved into your first rental and purchased a couch using a credit provider. There was a dicey period at one point when uni demands were high, work shifts were low, and you didn’t make one of the payments in time. There is every chance that will haunt you for years to come. We know it’s not fair. Something like a delayed couch repayment should not prevent you from getting a car loan years later. But it does, and it will. Don’t purchase on credit unless you are sure you can make each and every payment.
Now, you might laugh and call us out for double standards when you hear what we have to say next. Do make credit card purchases. You want to build a credit history because doing so demonstrates your reliability and capability to pay back, and that will be rewarded when assessors examine your future loan applications. It makes sense, right? Going to the bank and asking for $400,000 is unlikely to be successful if you’ve no credit history. It’s akin to going for a big job without a CV and asking the prospective employer to trust that you can do the work. So - build your credit rating but be oh-so diligent in making all the repayments in full and on-time. The future you will thank you for it, trust us!
Reduce your debt
Yes, we know we’ve just told you to go ahead and make credit purchases. However, we did carefully qualify ourselves! Well, reducing your debt goes hand-in-hand with the previous two tips. Develop a habit of living as per or below your means, not above them. You’ll never get a step ahead if you always live outside your means. If you’ve got a lot more than a couch on credit, round everything up and start a committed plan to pay off as many as possible. It’s not only a great habit to form, but you will be surprised by the subconscious effect this probably has on you - debt can feel like a dark cloud. We’re skilled in helping manage this whole process, so, importantly, don’t feel like you have to do this alone.
Think about a side hustle
Have you considered getting a job on the side that might help free you up a little? Ideas like dog-walking, selling stuff on online marketplaces or babysitting can generate a nice little extra amount without distracting you from your main job or uni. A side hustle might make the difference between going on that big night out without having to save or purchasing that piece of sporting equipment without having to take out a payment plan. It’s not for everyone, sure, but if you’re open to the idea then try it out and see.
There are plenty more angles you can consider when planning finances for your 20s (you might want to check out this article about planning for retirement in your 20s), but these form a solid starting point.
Contact the best financial planners in Melbourne
Before you think, “I’m in my twenties, there’s no way I can afford a financial planner” or “Financial advice is for people close to retirement”, stop right there! We offer a no-cost, no-obligation initial catch-up. If we both decide we’re a great fit for one another (and we are sure that will be the case!), then our fee structure is fair and reflects where you are at in life. We’re not about to charge you as if you run a complicated global property portfolio. That said, we want to help you get there if that just so happens to be your goal…! Reach out to the best financial advisors in Melbourne today.