Let’s say you’re in your 20s, fresh out of college, and ready to face the world head on! But when it comes to your finances, you may feel as if you are barely keeping afloat. Even so, what if I told you that you can build wealth now, even in your 20s? Yes, you read that right! With the right mindset and savvy wealth secrets, you can start building a solid financial foundation in your 20s that will pay off in your 30s and beyond!
First and foremost, there’s something that every high paid new generation workaholic should know about!
What is the difference between Income and Wealth?
Wealth is the value of assets minus liabilities, whereas income is revenues from diverse sources over a period. Making money involves producing income through a job, investments, or self-employment, but it is insufficient for long-term prosperity. Wealth is created via strategic risk-taking, long-term thinking, and disciplined saving. Wealth offers stable passive income streams, financial independence, and security from unforeseen events.
"Income is the stream that fills the bucket, wealth is the bucket itself."
Is it possible to build wealth in your 20s?
Yes, it is definitely possible to build wealth in your 20s. Not only is it possible to build wealth in your 20s, but it’s also the ideal time to build wealth over the long term, due to compounding effects. With your entire career ahead of you and a plethora of opportunities available, now is the ideal time to create a financial plan. You can kickstart your journey to wealth in your 20s even if you’re not in a great job, living with roommates, or buried in student loan debt.
Get to know one of the wealth secrets: the long investment time horizon, and how it can help you build wealth in your 20s!
Here are 10 steps to take in your 20s to become successful and wealthy.
Step 1: Get yourself out of Debt!
Before you start a regular saving and investment plan, it’s advisable to pay off any debt you’ve racked up. These debts could include credit card debt, student loans, or car loans, which often come with high-interest rates that can weigh you down. Making monthly payments towards your debts can eat away at your income, leaving you with little to save or invest in the future. It’s essential to prioritize getting rid of debt as soon as possible to avoid accruing more interest and penalties, which can limit your potential.
"Debt is a trap, especially student debt, which is enormous, far larger than credit card debt. It's a trap for the rest of your life because the laws are designed so that you can't get out of it." - Noam Chomsky
Recent studies show that the average American has amassed over $80,000 in debt, excluding mortgages, with credit card debt alone having a high-interest rate of up to 30%. Even if you have limited income, try to pay at least the minimum payment required, or consider consolidating your credit card debt into a lower interest card.
Step 2: Create a Financial Plan
Creating a budget is essential for build wealth in your 20s. Although this advice may sound repetitive, it is crucial to reiterate.
"If you want to be wealthy, you must be disciplined with money. You must be able to budget and save, and you must learn to control your spending." - Brian Tracy
- One straightforward method is the cash system, where you allocate a specific amount of money to each area of your budget and pay for everything in cash. For instance, you might set aside $120 for eating out. Once you run out of cash in that category, you should refrain from spending any more money until your next paycheck. This method helps you spend less and save more.
- Alternatively, you can restrict your purchases to a particular percentage of your income. For example, you may allocate 50% of your income to essential expenses, 30% to personal purchases, and 20% to savings or debt repayment.
The key to effective budgeting is to stick to your plan once you define it. Making too many exceptions will undermine your progress.
Step 3: Start Starting Early
Starting to invest in your 20s is a common practice to increase your long-term wealth. Saving and investing for the future ensures financial stability even beyond your 30s, and starting small is a viable option as most investments do not require large sums of money. Investing early allows for compounding, which helps increase earnings over time. In order to build wealth in your 20s, it is important to have a thorough understanding of managing money.
"Starting to invest in your 20s can be the difference between a comfortable retirement and struggling to make ends meet." - Ben Carlson
Being financially knowledgeable and street-smart is key. You can achieve this by reading books and articles, conducting research, and following reliable financial resources such as the AximDaily blog. Here’s a complete overview on How the New Generation Invest to help you!
Step 4: Develop skills & Have multiple streams of Income
Merely saving money will not increase your wealth. To become richer, it is necessary to increase your income. Concentrate on your career and on improving your skills, which will help you progress faster and earn more than your peers. If your current job does not provide opportunities for growth, consider switching to a different job. You can enhance your skills by learning new things related to your field, and you may also want to enroll in part-time courses if necessary.
"The most successful people are those who are good at Plan B." - James Yorke
Riches don’t come from one source of income. It is imperative that you take action now and establish multiple sources of income. You might wonder how to accomplish this while holding a full-time job, but it is possible with dedication and passion. You could work as a freelancer for another company as a part-time job to achieve this.
Step 5: Diversify your Asset Portfolio
To minimize financial risks, it is crucial not to rely solely on one investment and avoid putting all your savings in a single venture. Instead, consider establishing multiple sources of income, creating contingency plans for your goals and businesses, and exploring new opportunities to hedge your bets. This approach can help safeguard against devastating losses while increasing your chances of achieving significant success in any of your endeavors.
"The importance of diversification cannot be overstated. It is the difference between a well-managed portfolio and a gamble." - John Paulson
Diversifying your portfolio involves distributing your capital across a range of investments, which can help mitigate financial risks. A well diversified portfolio combines a broad array of investments, and the general consensus is that it is more effective in reducing overall risk compared to investing all your money in a single company, industry, or asset class.
Step 6: Build relationships with like-minded people
Building relationships can have a significant impact on our lives, as friendships can be valuable for both personal and professional growth. There is a proven correlation between the financial success of an individual and the company they keep. To increase your chances of achieving financial prosperity, it is advisable to cultivate friendships with individuals who are already wealthy and successful.
"Success is not a solo sport. You need to build a team around you to help you succeed." - Laila Ali
On the other hand, surrounding yourself with friends who prioritize appearance and social status may lead you to overspend on clothes and other luxury items. There could be instances where you feel pressured to splurge on a pricey outfit for a social event or outing. Such social events may add unnecessary expenses to your budget.
Things to avoid as you build wealth in your 20s:
To achieve financial success in your 20s, there are certain things you should avoid at all costs if you want to build wealth.
Keep these five things in mind:
- Not taking risks: Wealth is built by taking risks, but it does not mean letting your guard down. Make sure you don’t make too many safe career and investment decisions. Instead, focus on possibilities with large potential returns while simultaneously handling the associated risks. You need to welcome change and be receptive to fresh ideas if you want to increase your wealth.
- Thinking small: One of the biggest barriers to accumulating wealth is thinking small. It’s simple to become bogged down in a situation when you can’t look past your current situation. Those who are successful at accumulating wealth look for chances outside of their immediate surroundings and have a long-term perspective. Accept the challenge to think creatively and look for fresh, cutting-edge ways to accumulate riches.
- Excessive Spending: Lifestyle inflation refers to the inclination to increase spending as income increases. Although it may seem tempting to upgrade your lifestyle when your income goes up, this behavior can impede your ability to accumulate long-term wealth. Instead, it is advisable to adopt a frugal lifestyle and save as much money as possible. This approach will enable you to enhance your future investments and build a strong financial base.
- Having no savings: Building wealth requires saving money. You won’t have the money to invest in your future if you don’t save. Make saving a top priority and search for methods to cut costs so you can contribute more to your account. Your savings may surprise you with how quickly they can increase over time.
- Get-rich-quick schemes: Lastly, ignore the urge to participate in get-rich-quick schemes. Building wealth requires effort, perseverance, and time. There are no fast cuts or secret recipes that can make you instantly wealthy. Instead, concentrate on creating and following a long-term wealth-building plan. You can succeed financially over time if you are disciplined and persistent.
Trading in 20s: How it helps Build Wealth in Your 20s?
One of the most significant financial trends in recent years is the surge of Gen Z and millennial traders in the market. The availability of retail trading platforms and increased volatility in major economies have encouraged many young traders to enter the market, resulting in increased liquidity in the retail trading markets.
By trading in their 20s, individuals can build wealth by investing in financial markets and earning returns on their investments. It also allows portfolio diversification, taking advantage of compound returns, gaining valuable learning experiences, and creating passive income opportunities through dividend-paying stocks or other income-producing assets. Retail trading provides a way for Gen Z and millennials to achieve their financial goals quickly when market conditions are favorable.
How to Build Wealth in Your 20s – FAQ
Why is it important to start building wealth in your 20s?
You can start down the path to gaining financial stability and independence by accumulating wealth in your 20s. Beginning early gives you more time to save and generate compound interest, which over time can significantly enhance your wealth.
How much should I save in my 20s?
The best thing you can do in your 20s is to save 20 percent of your salary. There may be times when you have to save more or less, depending on your financial goals and situation.
What are some ways to build wealth in your 20s?
A percentage of your income should be set aside for savings, you should invest in stocks or real estate, you should start a side business or freelance job, and you should cut back on wasteful spending.
Is it better to pay off debt or save and invest my 20s?
It’s important to strike a balance between paying off debt and building savings/investments in your 20s. Prioritizing one over the other may depend on your personal financial goals and circumstances. However, it’s generally recommended to pay off high-interest debt first before focusing on savings/investments.
How can I increase my income in my 20s?
Increasing your income in your 20s can be done by starting a side hustle or freelance work, asking for a raise or promotion at your current job, or pursuing additional education or training to qualify for higher-paying jobs.
What should I invest in during my 20s?
Building money in your 20s may be possible by investing in real estate or a broad portfolio of assets. Before making any investing selections, it’s crucial to conduct research and consult a financial counsellor.
What should I do if I have a low income in my 20s?
If you have a low income in your 20s, it’s important to focus on reducing unnecessary expenses and increasing your income through side hustles or additional education/training. You may also consider seeking financial assistance or counseling to help you manage your finances effectively.
How can I stay motivated to build wealth in my 20s?
Staying motivated to build wealth in your 20s can be done by setting specific financial goals, tracking your progress regularly, seeking support and advice from family and friends, and celebrating small wins along the way.
What are some common money mistakes to avoid in your 20s?
Not saving enough, taking on too much debt, making poor investment decisions, and overpaying on frivolous items are some frequent mistakes to make when attempting to accumulate money in your twenties.