How To Start Managing Your Wealth In Your 20s

5 min read By Kevin Joshua Ng on March 12, 2021

When it comes to money matters, it’s never too early to start developing healthy habits that will help you build your wealth towards the latter years of your life.

You may find that you might not have a lot to work with yet, but it’s not about how big is your paycheck, it’s how you use it–or better yet, it’s how you manage it. It can be argued that being in your twenties is the best time to learn and discover real-world skills such as wealth management because your margin for error is still small and you can build on best practices as you go on and earn more.

Start making #WiserWealthier financial decisions today by forming these habits that will have a significant impact on your ability to grow, to cope with the ups and downs of the economy and to achieve major life goals.

1. Have a S.M.A.R.T. plan.

Goal setting is essential to pretty much any idea worth pursuing. This also applies to building wealth. You might have been taught that saving is important. However, you have to have a definite reason why so you can work towards it.

This could mean buying a car, getting your own house, upgrading your skill set, getting married & starting a family, or saving up so you can retire early. No matter what your goals may be, start creating a game plan towards achieving those. And make sure that you this plan is S.M.A.R.T.

If you haven’t heard of it yet, a S.M.A.R.T. plan means it should be:

Specific

Measurable

Achievable

Realistic

Time-bound

Know what your financial goal is, calculate how much it will take, make sure that it’s in the realm of possibility and not just wishful thinking, and put a deadline on it. That way you can turn your dreams into reality.

2. Open a high-interest savings account.

A great place to start your wealth management is through saving. While you’re at it, be on the look out for high-interest savings account that lets you save and earn more in interest than the usual savings account being offered. This might mean you have to keep your money in that account longer without easy access for withdrawal. But at the end of the day, this is a smarter way to build wealth early on, and create even more as your savings grow while time passes by.

A practical way to make saving intuitive and easy is to make it automatic. If you have a mobile app connected to your payroll account, you can automatically schedule to transfer a portion of it to your savings account. This also works the same with paying your monthly bills.

What is out of sight is out of mind, and you avoid the temptation to spend money that you could be saving.

3. Work around a budget.

Budgeting is a skill that you’ll thank yourself for learning later on. That’s because a budget is one of the most effective tools for managing your wealth and not because you’re depriving yourself of enjoying your fruits based on how this word is perceived.

Working around a budget doesn’t mean that you’re going to sacrifice experiencing the good things in life–it means you can enjoy certain things within your means and building towards creating more wealth so you can enjoy more later on: delayed gratification.

How? A budget lets you track where your money is going. Optimally, a well-designed budget helps you prioritize saving and building wealth opposed to spending. With a budget, you can set aside for your living expenses each month, then your savings and investments, and at the end of it, see how much you have left to spend on leisure and the like.

Without a budget, you’ll be left clueless as to where your money is going and because of that incur debt that traps you and slows down your progress in building your wealth.

4. Start saving for the rainy day.

By rainy day, we mean a fund that can be used for emergencies. Setting up an emergency fund is a top priority because things can happen unexpectedly in the real world: a sudden loss of job, a sickness, a loss in the family, accidents etc.

Unexpected expenses can easily wipe out your budget and savings. Having an emergency fund can cover that or at least soften the blow a little bit so you can more room for recovery.

A rule-of-thumb when it comes to setting an emergency fund is to set aside at least three to six months of basic living expenses. Having an emergency fund also means you won’t have to resort to borrowing money and incurring debt, because like we said earlier: debt can derail your financial plans.

5. Think about your retirement.

While retirement may not be your number one priority right now since you’re just starting out, it’s never a bad idea to begin thinking about it right now.

When preparing for retirement, it’s not just about having enough savings to last you on the remaining days of your life. No. The smartest way to prepare for your retirement is through investments.

Whenever you invest, the amount you start with is not the most important thing–it’s how long you can grow it. Remember this phrase: compounding interest. While you are investing in a business, in the stock market, or whatever income generating racket you choose, the money you put into it may or may not grow. But if it does, your investment has the ability to grow exponentially the longer time passes. That’s the power of compound interest.

To illustrate the effect of compound interest, here’s an example:

A 25-year-old who invests ₱60,000, setting aside ₱5,000 each month for one year, and earns 10% interest on it annually, will have ₱2,715,555.33 by the time he turns 65. If that same person waits until he is 40 years old and everything else is the same, he will only end up with ₱650,082.36 by age 65. That’s a difference of more than ₱2-million, only because he started investing 15 years earlier.

So if you can, and if you must, start investing now to prepare for your retirement. This can be your ticket out of poverty, improve your economic standing, and perhaps even set your children up for a better future.