The top 5 things to do with your money in your 20s.

The top 5 things to do with your money in your 20s.

Managing your finances in your 20s is all about balance, learning, change & planning. These are our top 5 recommendations for what to do with your money in your 20s.

1. Get into a financial flow and live to a budget.

Getting your first serious job and the corresponding pay packet can be an amazing feeling - you’ve never seen so much money in your bank account and suddenly you feel like you can do anything. Whether you are interested in cars, fashion or holidays, it’s all too easy to spend over and above what you earn to show your peers just how successful you are. Be warned though. The financial habits you create in your twenties can be binding and are incredibly difficult to change later on. Living beyond your means becomes easy and not thinking about your financial future will put you at a disadvantage.

Bear in mind that when it all boils down, there’s really only a handful of things you can do with the money you earn:

• Cover your needs like basic living costs and accommodation.

• Pay down your debts (including student loans).

• Save and invest in your future, both financially and from an education standpoint.

• Give money to charity and those that are less fortunate.

• Spend it on things you want to do and things that are nice to have.

A sensible approach is to divide each of these into a percentage or ratio that you can apply to your take-home pay and then continue to live within those parameters as your income grows. This way you can be sure that you are not letting a single spending category get too out of hand. For example:

CATEGORY	%	£2,000 Takehome	£4,000 Take-home	£8,000 Take-home
Basic living	50	£1,000	£2,000	£4,000
Debts	10	£200	£400	£800
Save/Invest	20	£400	£800	£1,600
Charity	5	£100	£200	£400
Luxury	15	£300	£600	£1,200

Example of how a percentage-based budget can change as your income grows.

You can read our recent article on why budgeting is important or get cracking and start creating your own budget with our monthly budget planning tool.

2. Start investing early to take advantage of compound interest.

When you’re in your twenties, it’s very easy to believe that retirement is so far off, that you don’t even need to think about it. Unfortunately, as you get older, your sixties become increasingly imminent and we’re yet to meet a client that does not wish they had started putting more money aside at a younger age. In a recent article, we indicated that to live reasonably comfortably, you are going to need a retirement fund of at least £500,000 (in today’s terms). Starting with a retirement fund of £0, it can seem like an impossible task and that the small amounts you put away aren’t making a dent. However, if you give it some time, reaching the milestones of £10,000, £50,000, £100,000 and so on feels like a real accomplishment.

The secret to building long-term wealth is to start early and take advantage of compound interest. In one of our other articles, we take a closer look at what compound interest is and how it works. Have a play with this compound interest calculator to see the difference an extra few years can make.

3. Pay off your debts.

Some people are totally against debt, others use it to their advantage. Regardless of your approach, we’re not here to preach but it’s easy to get into debt and incredibly difficult to get out of it. It is worth bearing in mind though that the more debt repayments you have each month, the less money you have to spend on doing fun things or investing and building wealth for the future. By living within your means and not having loads of commitments each month, you could end up with hundreds of pounds extra each month that you can put towards a house deposit or paying cash for your next holiday or car. Being out of debt is really quite freeing.

If you’ve managed to accrue debts from your time as a student, you can overpay each month to get the student loan monkey off your back as soon as possible and free up money in your budget.

4. Try out different jobs and build a career.

The old saying goes that when you enjoy what you do, you never have to work another day in your life. In reality, it’s a bit of an exaggeration, as with all jobs, there’s good bits and bad bits, but it certainly helps to draw attention to the fact that work takes up a huge proportion of our lives - so we may as well enjoy it! The problem though, is that life growing up can be quite sheltered so how do we know if we like something if we’ve never done it or even know it exists?

Try as many different jobs in as many different places as you can, as early as you can. It doesn’t matter if you are spending a summer as a photographer’s assistant, doing admin in a window factory or welcoming passengers onto a private jet. When you are young, you are free to take risks, work long hours and work away from home. Regardless of the level you are working at, you will benefit from a behind the scenes look into different industries and professions, meet interesting people and hopefully gain a better understanding of what direction you want to take your life in. The same applies if you are keen to apply your degree to a specific industry or sector - work in as many different sub-categories of that industry to find where your personality fits, what jobs you enjoy doing and gain a rounded experience.

Even once you have found what it is you want to do, unless you are lucky and find the perfect job from the outset, it’s important to keep moving on every few years. You change a lot in your 20s and you can easily reinvent yourself and jump up the career ladder by going for promotions at other companies. Your future self will thank you for your hard work later on.

5. Spend some money on amazing experiences.

Don’t for one minute think life in your 20s is all bout a hard-nosed assault on a career though; there’s plenty of time to settle down when you’re in your 30s! As your career progresses and you have work commitments and bills to pay, life can become much more restrictive. Being young, free and single is the perfect time to see the world or drive an impractical sports car. Just set aside some luxury money each month in your budget and enjoy things a bit before buying curtains or paying nursery fees become your number one priorities - you won’t regret it. You’ll be a much more rounded person with a few stories to tell if you have some money set aside to say ‘yes’ rather than no.

Conclusion.

It’s great to be in your 20s. You get to experience so many things for the first time, your career accelerates at an incredible pace and you start to see some real money in your pocket. Make the most of it whilst you can, but don’t neglect your future by getting into terrible debt or living too much for the moment. If you’ve managed to balance fun, travel and adventure, tried different things and set money aside for the future - you’re all set for a great future.

What’s next?

If you need advice on pensions or how you can invest for the future, you can get in touch with one of our advisors for independent financial advice. You can offer a free initial consultation and although we are based in Tunbridge Wells, we advise clients across the UK.

Don’t forget, this article offers information about financial planning and investing and should not be taken as personal advice. Remember that investments can go up and down in value, so you could get back less than you put in.