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Five Things Every 20-Something Needs to Know About Money

Updated: Nov 29, 2022

The benefits of knowing a few things about money when you are young cannot be overstated. Knowing how to optimize your money and avoid problems can make a real difference over the course of a lifetime.

When I asked my 23-year-old nephew what he'd like to get out of our financial planning sessions together, he paused and said, “Well, I don’t know. Because I don’t know what I don’t know.” And that gave me an idea: I created what I coined his Personal Financial Manual. It’s a document covering off the most important things he needs to know about as he launches into his adult life. It’s written with him in mind: it incorporates his financial situation, his life goals and is tailored to what’s most important for him to know. It explains the basics and it also has links to more in-depth articles so he can learn more. It would be like having Toyota write a car manual written to your specific level of knowledge about cars, your climate and your driving habits (“You should change your oil every January, May, and September, replace your wipers twice a year, and don’t forget to remove the fishy crackers from between the seats.”)

If you’re reading this and you’re not in your 20s anymore, think about who in your life could benefit from some financial education. Reach out to them and plant the seed in their minds – or better yet, give them the gift of working with a financial professional.

Here’s my advice on five topics that 20-somethings should know something about:

1. Money isn't just about numbers - it's emotional.

2. Get invested in the stock market early and invest regularly.

3. Avoid getting too far into debt.

4. Be aware of how you spend and spend mindfully.

5. If buying a home is a goal, start planning now.

1. Money isn't just about numbers.

If we try to pretend that a plan that involves numbers on a page is all we need to be better with money, we will fail. Money is emotional. Rational plans will not work until we understand our beliefs and feelings about money.

Everyone has a money script. It's your history with money, what you learned in childhood, what your experience has been. Your money script influences how you spend, how you save, whether you like money or hate it, and whether you can even talk about it. Take some time to think about how you feel and what you believe about money and how these things influences your decisions.

2. Get invested early and invest regularly

To me, this is a prime opportunity for a young person: investing in the stock market in their 20’s. Starting this early allows for years of investment growth and compounding (earning money on the money you earn), while investing regularly (preferably on an automated basis) builds savings discipline.

The other day I showed the following chart to my 15-year-old son and prefaced it by saying “Owen, I’m going to show you a graph will change your life.” Here it is:

Investing $5,000 a year into the stock market inside of a Tax Free Savings Account (TFSA) for 37 years could grow to over a $1-million. Even more incredible is that 82% of the money came from stock market returns. Imagine earning $860,000 tax-free for doing nothing.

Not only is getting invested early so important, but learning the basics of investing will do two things: give you the confidence to invest and save thousands in fees by doing it yourself. Letting money sit in a savings account is a lost opportunity, and paying high fees eats away at returns. The graph below demonstrates these points:

Almost anyone can invest using one of three cost-effective ways: buying individual ETFs, using an all-in-one ETF or using a robo-advisor. It just takes a little knowledge.

3. Avoiding getting too far into debt.

The 20s is the time where independence, a regular income, and credit cards collide. This combination can end painfully: furnishing a new apartment, going out with friends, and traveling are easily funded by your first credit card. Debt can pile up quickly. Understanding how credit cards charge interest and what happens when it’s not paid on time can motivate you to spend responsibly and within your means. It’s shocking to see numbers like this:

A $1,000 item can end up costing $1,862. The interest cost can be debilitating. Once the debt treadmill starts rolling, it’s really hard to get off.

4. Understanding spending habits to spend mindfully

If I could write two blogs, my second one would be on this topic: spending wisely. Looking back on my life, I’ve wasted so much money on things that didn’t add any value or happiness. I wish I’d practiced mindful spending – simply being more aware of my spending and stopping to think about whether it’s a good use of this limited resource.

Rarely would I suggest that someone create and follow a budget. It’s unrealistic. However, tracking spending shows in black and white exactly where the money goes and can be very eye-opening. By adding up how much money gets spent on take-out and delivery for example, you might decide to cut that habit in half, which could mean saving enough money to go to on a sunny trip in February. The key is to spend money on the things that add value to your life, either financial value or emotional value. And, of course, to spend less than you earn.

5. Planning for buying a home.

Much has been written about how hard it is for Gen Z’s to buy a house. And it’s true. A house in the GTA can easily cost $800,000. It seems absurd that someone in their 20s can amass a big enough down payment to afford this. Planning ahead and knowing how much you will need can make this goal achievable. It will probably take longer than it did for your parents, but for two people earning a decent income, it can be done. With some planning.

Putting money aside early for a down payment and investing it properly is the key. Also, knowing how to do the calculations to figure out how much cash you’ll need, how big of a mortgage you could afford, and what other housing-related expenses you might face will be really helpful when you’re deciding whether buying a house is in the cards for you.

Spread the news

If you’re in your 20s and reading this, excellent! If you’re not, I’ll bet there’s a 20-something in your life who could use a nudge. Give them the best gift possible: awareness of financial planning. Then go beyond awareness and get them some personalized advice and planning help to get them set up for life. Not everything will go smoothly financially, but having awareness, knowledge and an understanding of what planning is will benefit them for the rest of their lives.

There aren’t many places that a young person can get this kind of help. [Cue the sales pitch.] I can help - I’ve introduced a new service “The Young Person’s Financial Manual” – check it out on my website. Get in touch if you’d like to give them a gift that has lifetime value.


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