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8 ways to prepare for financial freedom in your twenties

June 22, 2020

Read for 8 min

The opinions of the employees of s You are personal.


8 ways to prepare for financial freedom in your twenties8 ways to prepare for financial freedom in your twenties

The twenties are a time to enjoy them freedom you will only experience that again after you retire. You are also the ideal age to invest, as you have time in your favor and can enjoy the magic of compound interest.

Over the years I have started a millionaire business and made large investments with significant benefits. But taking the right step in my twenties saved me from headaches and frustration – and it can do that for you too.

There is a saying: “Those who risk more win more.”

Here are eight financial principles you can use in your twenties to prepare for long-term success.

1. Understand compound interest and valuation

One concept that generally goes unnoticed in long-term financial decisions is the impact and concept of inflation. My parents always told me to save at least 10% of my salary for my retirement. Saving a little today can be a great advantage in the future thanks to compound interest. But remember that compound interest is a double-edged sword: a small debt can turn into a large debt in the future.

You should also try to make financial decisions based on the assessment. Buying a house is not always a bad decision. In fact, a Harvard University study showed that homeowners have better fortunes than those who rent. On the other hand, investing on the stock market at higher valuations is not a good decision. You should focus on investing in assets that are available at an attractive price.

2. Generate passive income

The faster you can spend your money and make profits while you sleep, the faster you can enjoy the life of your dreams, reduce stress and even live longer. This point is difficult to digest, especially for those who make more money. Every peso you win passively is worth ten times more than the one you win at work. When you generate residual income, you create the best form of financial freedom. Your time on earth is limited and it is important to find ways to ensure that you maximize your income while minimizing your work time.

3. Avoid debt

Try to make smart decisions when borrowing money, whether it’s credit cards or college loans. Borrowing money with credit cards, work loans, and short-term bank loans can put you in a debt circle that you seem unable to get out of. These types of debts are associated with a high interest rate, so you should avoid them unless there is an emergency.

4. Make friends with good debts

Not all debts are bad. For example, a mortgage to buy your house. The average home price in the United States is approximately $ 310,000. If you take out a 30-year mortgage to buy a home at this price, with a 20% deposit at 4% interest, you will end up paying a total of $ 532,795.47 (including interest). If you adjust inflation to house value after 30 years, a value of $ 613,240.33 is expected – meaning that you have made a 15.1 percent profit on your debt. On the other hand, if you spend all the money on rent for the same 30 years, you will have absolutely nothing.

5. Save to invest

Some young people, particularly millennials, who started their careers during the 2008 financial crisis, are very cautious about equity markets, mutual funds and other financial instruments. They prefer to keep their money in cash instead of risking it in the market. However, history has shown that the best way to get into the market is to make sure your money grows faster than inflation.

It is true that the market fluctuates over time. On average, the SP 500 has achieved an average annual profit of 4.2 percent since 2000, while the average annual inflation rate during this time is 2.3 percent. A dollar invested in 2000 would have become $ 2.10 today. This despite recessions. If the same dollar had been kept in cash, it would only be 66.4 percent of its current value.

I also recommend investing in assets that have these three advantages:

  • They increase their value over time so that they can be sold at a profit in the future.
  • They are the money you use every month.
  • You have tax advantages like 1031 in real estate.

When making an investment, you should always think about the worst scenario and prepare for it. People regularly expect extraordinary returns on capital and hope for the best scenario, but they have no strategy in case something goes wrong. Diversification is key – remember never to put all your eggs in one basket.

6. Take only what you need with you

If you have what you need, you will have income opportunities throughout your life. Nobody taught me the debts that I would accumulate. College loans can be a form of good debt, but only if your future income can pay for them. The debt you owe to finance your education should never exceed the income you hope to earn in the future.

7. Avoid unnecessary consumption

The simplest principle that will help you get your financial destiny under control immediately is to focus on minimalism and avoid consumerism. Really wealthy people do not boast of their wealth. Rather, they save and invest their money instead of spending it on things that make them look like they have money. You may have to say goodbye to this new pair of Nikes, or eat at home more often, but at least you don’t have to eat cat food when you are 70. A study by the Integer Group found that 64% of consumers do not consider branded products to be better than the cheapest option. Really wealthy people do not care what others think about them and have no desire to impress the people around them.

The way I define minimalism is very simple: just spend money on the things you need to give your life real value.

8. Be patient

When I was younger I wanted success and I wanted him right away – and I was ready to go into debt to get it. If you watch a lot of TV, you probably have the impression that people become financially independent and earn a fortune overnight. Then I realized that wealth accumulates over time. I have learned to be patient and disciplined with my investments and expenses.

Your health and peace of mind are your most important assets. Never risk your health for money – even if you think you can because you are 22 years old. We all have potential. We are unique, but we are no different from others. We can all be somebody, but how much we want to be that person shapes our current actions. And there is no better time than your twenty to dream big, think big and above all act big.