The 20s is the decade that flies past the fastest. It is also when you are abundantly creative, energetic and adventurous. You have found your footing and are ready to take off. You want to do things and go places and your wallet agrees. You are getting married, starting a family and buying a home. Healthy finances help since they not only pay for the life you wish to live but also save you the stress of worrying about having enough in case of need. Here are some essential milestones to reach in this decade.
1. Get Insured
As you grow in your personal life, you should also consider providing for the uncertainty factor of life. There are no guarantees on anything, least of all life, and insurance only helps ease the difficulty in some ways. The rule of thumb for life insurance is 10 to 12 times the insured person’s annual income. The earlier you insure, the cheaper it is. It might look like an unnecessary expense at this early age, but peace of mind really does not have a price. Insurance for health and your other material assets are also things you should be looking at in your 20s.
2. Save For Retirement
You are a decade closer to retirement by the time you reach 30. Isn’t 40 the new aspirational retirement age for us? A minimum target for saving is 10% of your income. As you draw closer to 30, your goal should be to move it to 15%. If you are in a very high income bracket, consider revising your retirement to a closer date. If you need, you can still work after that, but this approach will give you room to choose.
Don’t let your earnings lie idle. The financial ecosystem offers a million ways to beat inflation and the bank rates. There are tested investment approaches for various risk appetites you can benefit from. Realty, gold, and stock are good options, and you can hedge your risk by balancing them with government bonds and debt instruments.
4. Be largely debt free
Debt is not always a bad thing, and efficient debt management is critical to personal finance. One of the goals of your 20s should be to get debt free by the time you are 30. Assets like education and property might require long-term servicing, but outside of that, try and eliminate all debts. This would include credit cards, institutional loans, loans from friends and family, and purchases made on EMIs. Do not fall for zero-interest EMIs, since you are still pledging your future earning to make that purchase.
A simple way to approach financial health in your 20s is to list your personal financial milestones and create a plan for each that will save you the worry of financing them. The four milestones listed above are basics, and you will have many more you want to reach.
Some of you may have already successfully reached all your personal finance milestones. We would love to hear about your story. Do let us know about your successes, doubts, and questions in the comments.
Subhorup Dasgupta is a Hyderabad-based writer and artist. His writing on frugality and responsible living stresses the need to understand, simplify and organize money as a crucial step towards a happier life. He blogs at Subho’s Jejune Diet.
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