Let’s face it. Most people don’t have access to a financial advisor. And if they do, those financial advisors may not take into account the human side of managing money – like how spending, saving, and stressing about it actually makes us feel.
Cue the Nav.it money coaches.* We’ve long been answering money questions in the app, but now you can write into our money coaches.
Money coaches* are here to answer your money questions, including everything left out by school and your parents.
Dear Money Coach,
I am first gen, so I’ve had to navigate many things without much guidance from my parents.
I graduated from college a couple of years ago, and life isn’t really what I expected it to be, especially concerning how I manage money.
WHY IS NO ONE OFFERING ME A MIL A YEAR TO BE AWESOME? I keep seeing conflicting advice from Google and social media about everything. Like, is using credit bad? Do I actually want to invest in crypto? Considering the hype train on TikTok, not having a lot of guidance at home, and zero personal finance classes throughout my 16+ years of education, I’m lost.
What do you wish you would’ve known at 25, and how can I set myself up financially to do better?
– Financially Lost in So-Cal
Dear Financially Lost in So-Cal,
Well, first of all, congratulations on being a first-gen. It takes serious determination and resilience to break barriers and be a first in so many ways. Managing money doesn’t have to be another obstacle if you have a strong foundation.
Your Financial Foundation
As for money management in your 20s, growing wealth and making money moves is a marathon, not a sprint. FOMO is making weird things like the AMC stock trend happen, but don’t get swept up in the hype. You’re off to the right start by asking questions and turning to reliable sources. As you mentioned, TikTok is great for getting comfortable talking about money. Still, you may want to pause before laying the foundation of your financial future based on what some random people say in 7-second videos.
Your 20s are about setting the foundation, focusing on fundamentals, and taking advantage of time.
That means your habits and mindset are as important as your money.
Key questions to ask yourself as you start managing your money
- Do you spend less than you earn each month (and thus save)?
- Do you have an emergency fund, or are you on the way to building one? (That means you could quit your job and still have enough money to pay for your lifestyle for at least 3-6 months).
- Do you have high-interest debt like credit cards? If you do, time to pay that off ASAP.
- Are you practicing daily digestible money habits? Small things like tracking your spending make you ten times more likely to accomplish your financial goals.
Once you’ve figured out habit hacking, saving, and paying off debt, the next step is to invest your extra savings after funding your emergency fund. Make your money work for you.
With investing, time in the market matters BIG time.
Even if it’s a smaller amount, investing still capitalizes on your advantage, which is time. I love what Mackenzie writes here: “Across social media, we only see the big moves – the putting fifty, sixty, or seventy percent of a paycheck into Robinhood or a 401k move. Those of us with small salaries don’t have many examples of what our progress really looks like. I mean this in the most loving way possible – focus on your finances and lower your expectations on what you can contribute financially without a toxic comparison.” This means even if it’s only $50 a paycheck, you still have a huge advantage that older, wealthier people further in their careers don’t have: time to allow your investments to grow.
People who invest early and consistently get longer-term returns and compound their money over decades. Fancy people like to talk about ‘dollar cost averaging.’ For everyone else, this term just means that you’re more likely to benefit from favorable prices in the stock market if you consistently invest versus if you don’t.
Understanding the fundamentals
In the words of our wise friend, Kenneth Medford, “Scared money don’t make money. We all need to face that fear and understand some foundations of how money works.” Don’t get me wrong. There’s a TON to understand, but you’ve already come so far. Let’s break down a few money basics.
Compound interest
Let’s talk about compound interest. It’s a beautiful concept that allows you to make money without doing much other than investing (also called passive income).
For example, if you invested $100 in the stock market from 1995 and left it in until early 2021 – even with two major market corrections – you would have about $1,578. That’s a return of $1,478.16 or 10.90% per year. Markets rise and fall, but data traditionally shows that investing and leaving your money over a 30-year period will give you a 7% return on average.
Diversification means coin
It’s also an exciting time to be a young person with time on your side and so many NEW investment opportunities. People talk about diversification in investing, which mitigates the risk of losing all your money at once if an investment goes bad. Imagine, if all your money is in the stock market and it crashes, you’ll need another decade to make it up. However, if 40% of your wealth is in the stock market, 30% is in real estate, 10% is in Bitcoin and Crypto, 10% is in early-stage start-ups, and 10% is in cash, then you are hedging your bets that one of those will retain its value while another potentially loses it.
Risk is everywhere in investing. However, there are more options available to us now than ever before. Only in recent years have non-accredited investors been able to invest in larger real estate deals on sites like Fundrise. Crypto and NFTs are here to stay and now support a healthy, diversified portfolio.
Everyone has different advice for how to break this down, find a balance that feels right to you, and try not to be too reactionary. What I mean is don’t let every meme coin and dip in the market drive your investment choices. Remember, you’re starting young, so you get to enjoy time in the market.
Credit is a tool
Credit is not a substitute for cash, despite its easy use. In fact, with Klarna, AfterPay, and other buy now, pay later programs, credit is available on a different scale through more avenues. But that doesn’t mean utilizing credit this way suits your financial future.
Stay focused. Using credit wisely can help you increase your access to wealth-generating opportunities (hello, new home or business owner and entrepreneur.) That’s because having good credit can help you land a job, reduce interest rates, or even establish utility services.
So practice healthy habits by paying your debts on time and minimizing your debt-to-income ratio.
Don’t be afraid to make career moves
Being first gen, you may be paving your own way. Remember that it can be challenging to tell which moves to make next throughout your career. You’re not alone.
The bottom line is you’re young and healthy and have time to set yourself up for success. Learn the system, set up your habits and foundation, and then embrace the world of growing your wealth!
Takeaways for money management in your 20s
- Set up health daily, monthly, and yearly habits (download Nav.it for an easy system to do that!)
- Spend less than you earn (or make more money)
- Have an emergency fund
- Pay off high-interest debt
- Credit is a tool, and you can control it. It doesn’t have to restrain you.
- Invest your extra savings (and take your employer match!)
- Diversify your investments
- Your career does not define you, but you spend too many hours a day doing the work not to be paid your worth.
In health and wealth,
Erin
Related Reads:
Ask the Money Coach: How to Deal with the Haters
Ask the Money Coach: How to Get my Husband to Talk about Money
How to Talk About Money (And Why You Should)
Four Tips to Manage Your Mindset
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*Just remember, we are NOT your financial advisors, tax advisors, or legal advisors by simply accessing this site. Â Everything that you read or interact with on the site is for informational purposes only. You should contact a professional before taking action.