• Kritika Goyal

The Checklist For Getting Good With Money In Your 20s

I used to be obsessed with making the ‘right’ financial decision, and always ending up in making none. And then I realized that the ‘worst’ financial decision you can make is to make no decision at all.


We millennials are so busy living our lives on our own terms that things like ‘savings’, ’emergency fund’, ‘retirement fund’ or for that matter ‘mutual fund’ don’t seem important to us. We think we have ‘time’ for all this.


One thing that I have learnt so far is  – ‘Not having a financial plan is not bad, but having one is definitely better’. And who doesn’t wants the better cheese, right?


So here we are, getting to the basics we all need to understand to start our financial journeys together. Listed below is the checklist for getting good with money in our 20s.


Asset vs. Liability


This is the first and foremost difference in finance we need to understand.


An asset is anything which is owned by the company or an individual to provide future economic benefits. Liability, on the other hand, is anything for which the company is obliged to pay it off in the future.


Let us try to understand it with an example –


You have bought two flats in a city, one for yourself to live in, and the other to rent it out. Let us give them names to understand it easily.


Flat 1 – where you live & Flat 2 – which you have rented to someone


Since you are getting monthly fixed cash flow to your account from flat 2, it is an asset for you. And since flat 1 demands monthly or annual repair, maintenance, or enhancements and does not generate any direct cash flow to your bank account, it is a liability for you.


So, our first basic goal should be to increase the number of ‘assets’ in our lives and to decrease the number of ‘liabilities’.


Find yourself a financial buddy


Just like every one of us has a partner in crime, why not have a partner in the finance world. No no no, don’t confuse it with ‘business partners’.


As most of us are not comfortable in talking about our salary, expenses, or investments to every other person, there comes in your ‘financial buddy’. He/she should be that person to whom you can talk about real numbers, about your financial problems without keeping anything to yourself.


And trust me on this, just like it helps having your best friend by your side during your breakup, having your financial buddy by your side in your crisis time can help a lot. And it is not necessary for him/her to be an expert in finance. You both can always start your learning curve together.


Get over your fear of credit cards


I used to be scared of using a credit card but now all my payments are done using it only. I have heard people saying ‘If you use a credit card, you will be in debt soon’ which is not entirely false, but it is not entirely true as well. 


Just like every other thing, you first need to learn how to use it properly. If you are going to use it mindlessly, then you are going to be in debt very soon, for sure. But, if you ended up using it mindfully, it can save you a lot of money. How? Well, this topic deserves an entire post, but let me tell you in brief, for now.


Using a credit card can make you money by spending on the things you are going to spend on eventually. Making money by spending money! Sounds exciting, right? So, start learning how to use a credit card.


Analyze your expenses


Okay, how many of you actually know your monthly expenses? Be true to yourself.


I am sure a lot of you don’t know how much you spend in a month on your utilities and needs. Let’s take this first step together. 


Start by making a monthly budget for yourself.


Take a pen and a paper and make a list of all the fixed expenses you have to make like your rent, WiFi, house help, mobile/television recharge, Netflix/Prime/Hotstar subscription. And then add an approximate amount (always the upper limit) for your other expenses like transportation, petrol/diesel, food, shopping, etc. Now add both these amounts and that will be your monthly expense which you can not ignore. You need to pay this much amount every month.


Then comes the random expenses which we do not plan for, things like eating out or random travel plans or hanging out with friends. 


So start analyzing where your money is going. This will help you in improving your decision making when it comes to money.


Make an emergency fund


What is an emergency fund? Well, now that you have calculated your monthly expense, it will be easy to calculate your emergency fund.


Let us suppose all your income sources are gone. You now have no money coming in. So, the amount you will be needing to get your regular life going without any compromise for six months is known as your emergency fund. 


So, if your monthly expense is ‘X’, then your emergency fund should be having an amount of ‘6X’ in it.


Emergency funds are helpful in the unseen troubles which we are unaware of. If you or any other family member loses his/her job, your emergency fund can take down the stress a bit by getting your regular life going for at least six months, giving you time to make decisions about what to do next without worrying about the money sources.


Set up an additional stream of income


Warren Buffett says “If you don’t find a way of making money while you sleep, you will work until you die.”


Read stories about the richest or financially stable people in the world and you will find one common thing among them. They all have multiple sources of income. 


There is a famous saying – ‘you should never keep all your eggs in the same basket’. True! Our lives should not be dependent on just one source of income. Now that does not mean you start asking your parents for money as another source of monthly income (just kidding!).


Start creating different sources for yourself, also known as ‘passive income‘. There are a lot of ways to start making passive income. Find your passion and take that first big step. Start working on it, invest your time and energy, build skills and the rest will follow.


Learn to speak the language of money


I have an interest in finance from always. But in the initial days, the jargon used to intimidate me from enhancing my knowledge as the moment I used to start reading something, 2-4 words used to come up whose meaning I need to search on google. And then I ended up closing my laptop and watching some series on Netflix.


To learn English, you need to learn the alphabets first. Similarly, to start learning finance, start by learning the basic terminologies which generally create road blockers in your learning curve. 


Let me know in the comment section if you would like me to create an entire blog post on the basic jargon of finance.


Start investing


I can never emphasize enough on this. The earlier you realize its importance, the better it is for you. 


Start investing. Start now. It can be in mutual funds, gold, bonds, real estate, anywhere, but just start. 


Don’t wait for the ‘right’ time to come as it never comes. Also, don’t wait for yourself to be a certified investor to start investing as this is something you learn on its way. And if nothing works, the financial buddy will come to the rescue.


Okay, this post got a bit long, but I hope it helps you in some way or the other. Do let me know in the comment section what you liked in it and what you didn’t. 

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