4 Smart Money Moves to Make in Your 20s

You’ve just stepped into the working world and expect that with your adult you’ll have plenty of disposable income in your hands. In reality? You’re more likely living pay check to pay check.

Now, imagine: if money is already so tight, how would you cough up the necessary sums for your wedding expenses, home mortgage loan, or family expansion plans? Thankfully, being in your 20s means you’ve still got plenty of time to build your wealth! So here are 4 smart money moves you should make ASAP to ensure future financial success.

Create a Budget and Maintain a Positive Cash Flow

Your priority should be maintaining a positive cash flow. You can do that by creating a budget – and, more importantly, staying within the limits you have set for yourself. A simple budgeting framework to use is the 50-30-20 rule, where you spend roughly 50% of your take-home salary on necessities, no more than 30% on wants, and at least 20% on savings, investments, and emergency expenses.

Find allocating 20% of your income towards savings challenging? Then find ways to cut down on your expenditure on the ‘needs’ (e.g., switching to a cheaper electricity retailer) and ‘wants’ (e.g., reducing the number of nights-out with your friends) portion of your budget. That said, you don’t have to go into full-on penny-pinching mode. Your budget is a tool to help you create a positive cash flow, not a joy-sapping straitjacket.

Related: 4 Smart Ways To Spend Your First Salary

Maintain a Good Credit Score to Unlock Benefits

Your credit score is a 4-digit number that ranges between 1,000 to 2,000 (AA rating of 2,000 being the best) – and is an aggregation of your credit history across different banks and financial institutions. Banks and other lenders use your credit score to gauge how likely you are to default on your debts. In general, the higher your credit score, the more likely you’d be able to negotiate for a greater loan amount, get it more quickly, and at better interest rates.

Doing the math, if your home loan interest rate were 2.6% instead of 3.5%, you’d end up saving S$70,431.10 for an outstanding home loan of S$500,000 with 25 years left. Thus, highlighting the importance of building a good credit score in your 20s. To do so, you’ll need to pay all your debts on time, limit your number of open credit facilities, and keep loan application inquiries to a minimum.

Related: Why Your Credit Health Matters And How It Affects You At Different Life Stages

Build an Emergency Fund to save for Uncertain Times

An emergency fund is a sum of money set aside for accidents, sudden injury, or an unexpected loss of income. Start building up your emergency fund while you’re still in your 20s; it helps create a financial buffer that can keep you afloat in a time of need without turning to credit cards or high-interest personal loans.

How much should you have in an emergency fund, though? A general rule of thumb is at least 3 to 6 months’ worth of living expenses (note: this refers to your monthly budget’s ‘need’ portion).

Invest in the Right Insurance to Secure Your Financial Future

The next step you should take is to take up a suitable insurance plan, so you can rest assured that your loved ones won’t be saddled with a pile of bills should anything untoward (e.g., terminal illness or death) happen to you.

Life insurance is a crucial component of financial planning, especially in your 20s. During this time, many individuals are building the foundation of their financial future, which often includes accumulating assets, taking on debts, and planning for significant life events such as marriage, buying a home, or starting a family. Securing life insurance at a young age ensures that these financial commitments, as well as your loved one, are protected in case of an unexpected death.

One of the primary advantages of obtaining life insurance in your 20s is the cost. Premiums are generally lower when you are younger and healthier, making it an economically wise decision. Over time, these lower premiums can lead to substantial savings compared to purchasing a policy later in life.

If you are interested in learning more about the different life insurance policies available on the market, find out more below!

Read More:

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• How I Managed to Amass $750K Before the Age of 35 — Tips By Brian Halim
• Can You Live Off a Million Dollars Forever?
• A Basic Guide to Fixed Deposit Accounts in Singapore
• Investing 101: Why You Need To Invest To Grow Your Money

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