Hello My Twenty-Something Friends, My ideas about personal finance are similar (though not exactly the same) for most people of various ages. But I am mostly interested in young people building wealth in their twenties. I was encouraged to write on this post because a young twenty-something commented on the fact that I drive a luxury car. So, she thought that she should also. Well, of course, i’d like all of you to be able to buy a luxury car. But…let’s think about this.
Buying a Luxury Car in Your Twenties OR Building Wealth in Your Twenties
What does my luxury car have to do with building wealth in your twenties? Well, the young twenty-something was saying that she wanted to buy an expensive SUV, a G-wagon to be exact. She said that she was saving her money until she could get a brand new G-wagon.
For those who do not know, a G-wagon is a Mercedes Benz SUV that costs over $100,000. Let me say that again, they cost well over $100,000!
Okay, I don’t know how realistic it is that she will get to that G-Wagon anytime soon. But, I can tell you that a G-Wagon to just drive as your personal transportation is not an asset, but rather it is a liability. As such, I would rather see young people put the money into assets.
(Reminder: Assets are things that put money into your pocket.)
As far as me buying a luxury car…Well, I bought a luxury car when I could afford a luxury car.
I did not buy a luxury car in my twenties. Nor, did I buy a luxury car before I bought assets. I did not buy a luxury car before I could afford to not only buy a luxury car. When I did buy a luxury car, I could afford to buy it in cash.
Also, that luxury car that I drive is 20 years old!
Now, I can’t tell you what to do. I can only tell you what I would do. You do you. But, if you read my financial literacy letters, I am assuming that you want to succeed financially.
Now let me talk about…
What Should You Do In Your Twenties?
What I recommend that you should do in your twenties is build a foundation for the rest of your life. In these letters that I write to you, I focus on financial issues. However, your twenties should be a time during which you build a foundation for your health,wealth, and lifestyle.
Because of the focus on building a foundation, I label the decade from the time that you begin earning full time income as the decade for building your empire.
Building Your Empire: How To Build Wealth in Your Twenties
In your twenties, you have the best time to start building your financial empire. The reason for this has to do with 3 things:
Long term goals, like retirement, have maximum time to be reached.
You have the most time to start and practice good life-long habits.
You have the most time for investments and good habits to compound.
Here are some steps and concepts, both dos and don’ts, that I like for twenty-somethings:
- Get that first full time, making as much money as possible. Once settled into that job, be open to starting a side hustle. Don’t get so excited about your first full-time job that you start spending a lot of money. First, you may be surprised at how little will be left over after taxes and other expenses are taken out of your paycheck.
- Figure out exactly how much money that you bring home each month.
- Look through your monthly bills and figure out what your monthly expenses are each month.
- Create a budget, or plan, for your monthly money.
- Make sure that you are not living beyond your means.
- Live as cheaply as possible. Consider living at home as long as possible. Use money left over to pay off debts, save, and invest.
- Start your emergency fund.
- When you buy your first home, plan to house hack. Try to have more than one person that pays you rent, as it makes it less likely that you will find yourself with zero renters. Remember, your tenants will be helping you to pay off your mortgage.
- Don’t buy a new car. Instead, get a pre-owned car. Then, whatever you get: Put 20% down. Don’t finance the car for any more than 3 years. Don’t spend any more than 8% of your gross income on monthly payments. .
- Start and contribute to a Roth IRA. These retirement accounts are awesome because once you put money into a Roth IRA, you will not pay tax on the growth, unless you take the money out before the allowed time.
- When you get a raise, don’t start spending more money for fun. Either spend the extra money to pay off more consumer debt. Or, invest the extra money. The sooner you start investing, the more time your money has to compound.
- Build a high credit score. You get a mortgage with the lowest possible interest rate, you will need a high credit score.
- If you can start a business, consider doing so. While starting a business does not guarantee that you will make a lot of money, it does create the possibility that you can make a lot more money than working for someone else.
- Once you have a fully funded emergency fund, focus more on investing rather than saving.
- Understand the difference between assets and liabilities. For the purposes of personal finance, assets are things that pay you money. Liabilities are things that require you to pay money. So, your home is not an asset, unless you have some renters sharing your home, that pay you some money.
- Spend time learning about money, credit, and investing. Learn about how to make money, how to save money, and how to invest money. Learn how to build credit, protect your credit, and how and when to use your credit. You can learn by reading blogs and books, listening to podcasts, and watching videos. Just make sure that you use a variety of sources, and don’t just listen to random people on social media. Make sure that the people that you follow are reputable and are not trying to sell you expensive courses and services. It’s your money. Make sure that you educate yourself and protect your money.
That’s all for today.
Before I sign off, I want to say…
Being able to keep a car for a long time is actually pretty cool. I have my car serviced regularly, and I enjoy the compliments that I get for it being in great condition, despite its age.
Therefore, I stick with my financial plan, as a way to continually build my wealth. And yes, I enjoy myself throughout the journey.
Remember that I want you to become wealthy.
You can do it! I have faith in you!
Hugs,
Rich Mom
Looking to learn more about personal finances? Check out:
12 Things to Know About Social Security
Who is Rich Mom?
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Also, please note: I am not an investment advisor. Always do your own due diligence and research before investing. Check with your own investment advisor.
Also, remember that past performance is not a guarantee of future performance.
The information shared here is not intended as financial advice, just entertainment and entertainment.