When one is in their twenties, they have the advantage of time and can bounce back from life adversities. Notably, financial mistakes made at this age can easily be corrected instead of making them when one is much older. In that same measure, good financial habits will likely bear fruit over time and set you up for success. Simple financial concepts such as budgeting, savings, and investing may make a difference in your life and your peers' lives in the next 30 years. Below are some key financial considerations you may have as you go through life in this delicate age, and I trust you will make decisions that will positively shape your life. Have a retirement and an emergency savings plan Save at least 10% of your income in a pension scheme and 10% in an emergency fund. I know you are probably wondering why a 20-year-old would be thinking of retirement. We only live once, don’t we? You see, retirement is never far off. We have instances of retirees languishing in poverty, and I am sure you would never want to be a part of the statistics. An emergency fund caters to emergencies such as sudden sickness, loss of a job, buying a new phone, or even car repair. Ideally, your emergency savings should cater for 3-6 months of your total expenses. Once you start saving your money and planning well for retirement at this juncture, you can consider ways of investing and growing your money and escape from financial inconveniences. Please don't wait until you have a million in your account to start saving; start saving now. Invest in financial and investment education Investing and personal finance are vast and changing, so investment resources and time to develop yourself. Utilise resources such as books, online courses, and webinars, and seek guidance from experienced investors. Continuously educating yourself can greatly enhance your financial knowledge and investment decisions. I strongly recommend starting with two books: The Richest Man in Babylonby George Samuel Clason, and I Will Teach To Be Rich by Ramit Sethi, who also has a podcast and show on Netflix. Have smart goals Saving is fundamental to cash management, but setting smart goals can significantly enhance your saving habits. Smart goals are specific, measurable, achievable, relevant, and time-bound. They allow you to break down your long-term vision into smaller, more manageable milestones. For instance, committing to save Rwf150,000 each month to purchase a second-hand car worth Rwf4,000,000 in two years is a smart goal that can guide your financial decisions. Ensure that you constantly set goals, are accountable to them, and track your progress over time. Time value of money This concept holds that the value of a franc today is worth more than it would be tomorrow. The value of money is often eroded by inflation, and you should thus ensure that you hedge yourself from that by investing in an asset that gives you returns above the inflation level. As a 20-year-old, you need to know that saving money in a savings account equals putting your money under a mattress. In this case, putting your savings in an income-bearing account like a money market fund would be better, as it will give you good returns with liquidity. Continuously be updated on the returns offered by the money markets and take advantage of them to gain some returns on your savings. Also, utilise your time well so you do not miss out on an opportunity for financial prosperity. Your career path may shape your finances As a twenty-year-old, you are probably figuring out your prospective career, attending corporate fairs and establishing what path you would choose to follow. The career you choose may affect your finances and how fast they grow. I urge you to consider researching the market trajectory and emerging trends and evaluate what may work in the next decade. Further, if you aspire to be in business, do a feasibility study of all your projects to establish what the market needs and ensure that you can meet that need. Harness your skills and diligently offer value in whatever space you are in; there will always be room for growth and expansion. Have an annual financial health check If you are in a learning institution, you have most likely attended a medical camp organised by your school. Similarly, consider having an annual financial health check. As you grow older, take time off your schedule to assess whether your current financial status matches your goals, aspirations, and where you aspired to be at the beginning of the year. Ensure that you document each step to improve your financial health and use this analysis to recalibrate your finances in the right direction. Prioritise yourself In one's early twenties, it is easy to go with the flow because of the fear of missing out. Those random lunches, dinners, and hanging out could deplete our finances, especially if they are impromptu. Carelessly spending money will cause you to resent your friends and may strain the friendship. You do not have to attend all social events or impress your friends: learn to say no sometimes as you prioritise and add value to yourself. Be content with what you have so that you are not swayed by everything you see in ads. Learn to plan your finances well to apportion money in well-thought-out areas. Live within your means You may have heard of the phrase, “fake it until you make it” but I would instead earn it until I look at it. While this concept may work in other settings, unfortunately, this may not work for money. Strive only to obtain things that you can afford and maintain. For instance, you do not need to buy a new car financed by the bank; instead, save some cash and buy a used car without being encumbered by a bank. I also acknowledge that people may judge you based on how you look. However, you do not have to wear expensive clothes; instead, you can wear affordable but well-maintained clothes. Learn to walk the steps of a prudent financial journey so that you can also celebrate the milestones you will achieve over the years. Lastly, be easy on yourself; life is not always a straight line but remember to pick yourself up once you stumble and fall quickly. The author is the Managing Director at BK Capital, an investment advisory services firm based in Kigali.
