The following post is contributed by a staff writer.
The thing about getting better at personal finance is you wish you could have known what you do now when you were younger. If I had the skill and experience I have now, at 21, I could have set amazing decisions in motion, investments and practices that would have paid off many times over. Time is your best friend when it comes to money, and we tend to waste plenty of it when we’re young. I don’t spend a lot of time thinking about this stuff, but I’ve gotten some emails asking me about this. So here goes: what I would do with my money if I was 21.
- Make good decisions with limited resources. Most people don’t make a lot of money at age 21 but let’s say you can scrape together $2000 a month from a decent job. If you live with roommates, you can share the cost of housing so it’s cheaper than living alone. As you start to earn a higher income over time you can keep your spending the same. Let’s say you spend $300 a month sharing a house with 3 other people. You eat noodles, rice, and beans, with some veggies thrown in. This totals less than $200 a month. You limit your “fun money” to less than $200 a month, and pay about $200 a month for student loans. That’s a total of $900 of spending, which means you have $1500 each month for other purposes. Of course, this is painting a picture of a pretty spartan existence, but sticking to a budget while you’re young is a lot easier than changing your habits when you’re older. With the outlined budget you can save approximately $500 a month to first build up an emergency fund of $5000, and then starting investing for your retirement.
- Start investing. Buying a home can be a high priority for many people. In some cities, especially in America, it’s possible to buy a house that gains value fast, for less than $100,000. You may decide to save for a down payment instead of only buying stocks or bonds. You can also research other investment types such as the Forex market, and CMC markets. Another popular strategy would be to learn about the world of P2P lending, and other similar investment options. However P2P lending is not available in all countries.
These are all steps that people who spend a lot of time with there personal finance will get to eventually. But it’s important to make these decisions and steps as soon as possible. By doing them at 20 or 21, rather than 30 or 31, you’ll have a lot more time to grow and will build up a lot more wealth and success.