How to Get Ahead Financially in Your 20s

In your twenties, most people are unattached and figuring out their career. You may not know where you’ll be working in a few years or in what capacity. You have no dependants, few assets and no career specialization. Your 20’s are a great time to look critically at the foundation of your life. Going out would be one of your biggest expenses, in addition to housing and rent. Here are five ways to get ahead of other 20-somethings.

Note: this article is part of a series.

Super Save Your 30’s

Outearn Your Peers in Your 40’s

1. Buy an investment property

Your earnings might be low, but you don’t have as many fixed expenses as someone with a mortgage or kids. Some of the best advise I can give you would be to buy a rental investment. Ideally this would be a condo or a duplex. Read my post on how to figure out if your property of interest is a good investment.  Aim to put down 10-20%. I put down 20% on my mortgage in order to avoid CMHC insurance, which is a mortgage default insurance of 3.15 percent (when I bought my property) of purchase price and gets added to your mortgage balance.

Each year, you will earn a bit of positive cash flow while your tenants pay down your mortgage. Your rental may also appreciate in value while you own it. With a 25 year mortgage, the rental will be paid off in your late 40’s or early 50’s.

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2. Start saving for retirement

Your peers are all focusing on paying off their student loans, and that is a good target for you as well. However, you can one-up them by opening a retirement account and make monthly contribution. I recommend a minimum of $100 a month, and you want to aim for 5-15% of your income (higher if you don’t have work retirement savings. As this chart shows, by starting earlier and letting compound interest do it’s work, you put in way less money overall than investing later. When you start early, more of your balance at retirement is interest, not savings.

3. Change Cities

I love my home city of Toronto. I have lived here all my life, because I enjoy the lifestyle, the greenery, and the job and real estate opportunities. However I have seen others move to different cities with great results. A close friend of mine moved to San Francisco for graduate school and has a new job paying higher than a similar job in Toronto. Jim from Route to Retire is moving to Panama soon. The goal is to find a place with a lower cost of living or higher wages.

4. Take a post graduate course

Many a useless bachelor degree were upgraded by taking a post-graduate certificate. I got my latest job because I achieved my Canadian Risk Manager certification. Now I’m working on my Certified Insurance Professional designation. Bonus if you can get your company to pay for the costs.

5. Consider a Start Up

If you are presented with a savvy business idea, take it and run with it. If you have a great idea, play around and see if it has legs. The The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future is a great book to take you through lead generation to development.

When you’re in your 20’s, you have time on your side but not necessarily a lot of money. Leverage that by using your time to generate income, develop a business, and save for a rental property or early retirement.

 

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