12 Smart Money Moves to Make in Your Twenties

Your twenties may be the best phase of your life due to various reasons. You may start earning a steady income at your first job and have fewer responsibilities to handle. This newfound financial freedom encourages many twenty-somethings to spend money impulsively instead of saving up right from the get-go.

However, you can stay ahead of the curve and get a headstart to securing your future with these smart money moves.

1. Get good at budgeting

Learning to budget is a crucial skill to master in your twenties. It helps you understand where every rupee you earn goes. This is the first step to curb overspending, so you can begin to save a portion of your income diligently each month. Thereafter, you can use an investment calculator to figure out how you can grow the money you’ve saved.

2. Build an emergency fund

An emergency fund is the foundation of the financial safety net you need to secure your future. And your twenties may be the perfect years to focus on creating this buffer. Experts recommend that an emergency fund should be enough to cover at least 6 months’ worth of expenses, so you can tide over contingencies like a job loss or a medical emergency.

3. Invest in life insurance

If you’re looking for a single product to secure your future and your family’s, life insurance is one of the best investment options in India. Unfortunately, most people put off buying a life cover until their thirties or much later. By prioritising this in your twenties, you can get the benefit of lower premiums as well as a ready financial safety net for your loved ones.

4. Obtain health insurance

Health insurance is another essential safety net you need to have in place in your twenties. A medical emergency could occur at any age, and the earlier you purchase a health cover, the better. With health insurance, you can rest assured that an unexpected medical illness in your family will not dent your finances or delay your life goals too much.

5. Manage your debts

Debt management is a smart money move that’s best done in your twenties. If you’re not careful, you may find yourself with a portfolio of high-interest loans that could eventually lead to a debt trap. This is why it’s crucial to prioritise paying off costly loans as early as possible and avoid taking on more debt to meet discretionary or frivolous expenses.

6. Build your credit score

Your credit score is a three-digit number between 300 and 900 that reflects your creditworthiness as a borrower. The higher the score, the better it is. Your twenties may be the ideal time to focus on building your credit score, so it becomes easier to avail essential credit facilities like home loans or education loans later in life.

7. Do a bit of tax planning

As you move from one role to another in your twenties, your pay hikes may raise the income tax slab rate applicable to you. Tax planning can help avoid the burden of high taxes. Consider options like the Public Provident Fund (PPF), tax-saver fixed deposits and Unit Linked Insurance Plans (ULIPs), which are among the best investments in India to save tax.

8. Create a goal-based investment plan

Many people make the costly mistake of investing without a solid plan in place. To avoid this error, ensure you have a goal-based investment strategy. You can make use of an investment calculator to figure out how much you can grow your funds within a given timeframe at a specific rate of return. This will allow you to plan and achieve your life goals effectively.

9. Start saving up for retirement

When you’re in your twenties, your retirement may be decades away. However, it is crucial to begin saving up for your post-retirement life as early as possible. This gives you several years to tap into the benefit of compounding to grow your retirement corpus. Additionally, when you are younger, you can also afford to choose high-risk investments that offer potentially higher returns.

10. Improve your financial literacy

Educating yourself about personal finance is one of the smartest moves you can make in your twenties. This involves understanding various financial products, investment strategies and economic principles that affect your personal finances. By improving your financial literacy, you are better equipped to make informed decisions about saving and investing.

11. Prioritise paying yourself

This essentially means you need to save or invest a portion of your income before spending money on anything else. By prioritising paying yourself first, you ensure that you are consistently contributing to your savings and investment goals. This habit instils financial discipline and helps you build a substantial corpus over time.

12. Steer clear of lifestyle inflation

Lifestyle inflation refers to increasing your spending when your income goes up. It's a common trap in your twenties, especially as you start earning more. To avoid lifestyle inflation, attempt to live within or below your means even as your income grows. By doing this, you can accelerate your journey towards financial independence.

Conclusion

To sum it up, the journey to financial wisdom begins in your twenties because this crucial period sets the tone for your future financial health. As you navigate through this exciting phase, the principles outlined above can guide you towards a future that is financially secure and rich in possibilities. By adopting these strategies, you can cultivate financial habits that will serve you well throughout your life. Remember to start early, stay consistent and watch as your efforts compound into a secure and prosperous future.

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ARN -  ED/12/23/6733