Building wealth is one of the main goals that you should have once you enter your 20s. However, not all of us have the financial knowledge to attain this goal, especially when paired with the fact that there are also living expenses, family obligations, and personal goals to worry about.
For this reason, here are the tools you should have to achieve financial security in your 20s:
1. Savings account
Before you apply for a car loan from a bank, buy a coveted gadget, or travel to your dream destination, make sure you have a healthy savings account. While you’re in college or when you enter the workforce, open a long-term savings account that has a high interest-rate. This account should be separate from the one you use for your expenses so you will be less tempted to withdraw money from it. It is also recommended to get a passbook so you can easily monitor the money coming in and out of your account.
Make saving money a priority rather than an afterthought. Once you have a savings account, deposit money into it religiously, whether it’s Php 200 or Php 2,000. This habit will help you build your savings steadily as you go along, which can help you buy assets and build investments when the time comes.
2. Emergency fund
Your emergency fund should be separate from your savings account, and this fund should never be touched unless there is a real emergency (and no, an emergency samgyeopsal dinner doesn’t count). Deposit money into this account until you have at least three months’ worth of living expenses in it. This way, you have a financial safety net in case you suddenly lose your job or have to pay medical bills.
3. Credit card
A credit card is more than just a convenient piece of plastic; it’s also a means to help build your credit. However, it can also be your financial downfall if you don’t know how to use it properly.
Thus, get a credit card only if you know within yourself that you can exercise responsible spending. Having a credit card can help you pay for emergencies (e.g. medical bills, car repairs, urgent travels to loved ones, etc.), buy big-ticket items (furniture, jewelry, electronics), and earn rewards, among many other advantages.
When you pay your bills on time and don’t max out your credit cards, it will translate into a good credit history. In turn, good credit history can help you qualify for loans and get lower interest rates.
Insurance protects you against unexpected disasters, such as accidents or medical illnesses. And if you think you don’t need it yet in your 20, think again.
At this age, the most important policies you should have is health insurance and life insurance. Most employers provide health insurance to their regular employees. However, life insurance is something that you have to get for yourself. Aside from protecting you and your family, having these policies will also protect your finances from sudden losses.
Your 20s are the best time to get out there and enjoy life while you’re still young but don’t forget about building your finances along the way. When you have these financial tools to help you, you will be at a better place when you hit your 30s.