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Navigating your finances in your early 20s: a just-good-enough approach

10 April 2023

Some people get excited when they hear words like crypto or investing, either loving it or hating it. Others couldn’t care less or are close to frustration by all the advice and tips out there. Managing your finances in your 20s might not always be exciting, but it also doesn’t have to be overwhelming either. With a just-good-enough approach, managing your finances can be effective and straightforward, even with small amounts of money, as long as you focus on consistency, adaptability, and time.

Figure out what is going on with your money

Pros: control, transparency. Cons: easy to get distracted and quit

This first step is the financial equivalent of cleaning your room after it’s been a minute. See where you stand, write down your monthly income and all of your expenses. Develop the habit of monitoring your income and expenses: use any expense-logging-app, or you make an excel form if you’re into simpler things. Anything goes, as long as it allows you to log in your expenses and be aware of how much have on each account. Next to daily logs, plan monthly overview moments, where you analyse your spendings. Make sure your spending reflects your priorities: for example, you may prioritize experiences over material goods and allocate more money towards activities and excursions.

Get Action

Once you have some clarity over your money business and your habits, you can start thinking of solutions. Determine how much you can save up each month and distribute it between long term and short-term goals. Don’t make a big fuzz about figuring out your budget; it doesn’t need to be a single big event, and you can make adapt it as you go. But it’s important to find a sweet spot of how much you can spare and what you want to achieve.

Short term: be prepared

Pros: safety net, reliability. Cons: requires small sacrifices of monthly budget

Unexpected expenses will occur so often in your 20s, it barely makes sense to call them unexpected. That’s why it makes a huge difference to have an emergency fund – a safety net to fall back on in case things go wrong. Try to set aside a certain percentage of your income each month. Commit to that percentage, and consider doing it automatically, directly after receiving a payment. Aim to have at least three to six months’ worth of living expenses. If you’re comfortable with this habit, continue saving after reaching the goal for semi-short-term goals, that reflect your priorities (e.g. an exotic vacation if you’re into travelling).

Long term: invest in your future

Pros: discipline, long-term benefit. Cons: no instant gratification

Lastly, you can start thinking about the long term. This step is all about committing to a percentage that would not affect the quality of your life and sticking to it. Start small, whether it is 10% or even 5% of your income, but start early. The power of compound interest means that the earlier you start, the more time your money has to grow. Consider investing in a fund, depending on how much you’re willing to risk. If you give your money enough time, it will pay off, as the market tends to progress in the long run. Risk management is up to you, but there are many resources available to help you get started.

Conclusion

By following a just-good-enough approach you can most of all understand your finances and start navigating them towards your goals. While it is important to start early, the plan doesn’t need to be perfect, you can iterate a lot. Make boring, achievable commitments and stick to them through time.