Money Habits in Your 20s That Will Make You Financially Independent by 40

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Do you want to stop working after 40 or, even better, work on your passions or things that make you happy without caring for money? Financial independence is a pipe dream if you don’t work for it very early on in your life. You can begin by answering these questions:

Who Is a Financially Independent Person?

Financial independence is not about money. It’s about freedom.

If you think of it as a person who has a lot of money, then you’ll never be able to achieve it. However, suppose you change your perspective and picture someone who has everything without working for anyone but themselves. In that case, you’ll have an image of a financially independent person.

This person can be you if you learn to manage money.

How Do You Manage Money and Invest?

Healthy money habits never go to waste. If you have a good amount saved, you can start a business with it. For instance, an IT major could start their own IT firm. All they need to do is look for computers for sale and hire staff. They can do this by asking for funds or using their savings that they’ll never have to turn to anybody. As this example illustrates, savings allow you to be debt-free.

When it comes to investing, a person who starts a few years earlier could end up with substantially more money in life than someone who starts later. If you’re in your 20s and want to start investing, here are some tips to help you kickstart your journey.

  1. Learn about investing 

This shouldn’t come as a surprise. Before starring any new trick, you must learn how it works. The same goes for investing. Learn the basic principles of investing to begin with. As per the Intelligent Investor by Warren Buffet, you should look at:

  • Company’s performance
  • Company’s debt
  • Profit margins
  • Commodity reliance

When you’re trying to choose a company to invest in, these are some factors to consider. For detailed knowledge and insights by Warren Buffet, read The Intelligent Investor. Some more influential books include The Psychology of Money and Rich Dad Poor Dad.

  1. Clear your student debt 

You can’t invest money if you’re already in debt. A student loan is a significant financial burden when you’re in your 20s. It’s great that you’re considering investing, but you must strive towards clearing that loan first or do that while investing. 

  1. Invest in a Roth IRA

This is a safe investment that you can begin with before buying stocks. You might think it’s a bit early, but safeguarding money for your retirement always helps.

Roth means “after tax,” and IRA refers to an individual retirement account. It is quite beneficial, as you put in your money along with the taxable amount and then make withdrawals without tax deductions. This means that whatever you invest in that account is entirely yours when you take it out. At the age of 59.5, you can take out all the money at once with no taxes and no penalty.

  1. Create a budget

Investing begins after savings, and savings are directly related to expenses. You can’t save all your money, but you can increase or stabilize that amount by creating a budget for yourself. This allows you to track your expenses and prevents you from overspending. You can include emergency funds in your budget. This way, you can keep full track of where your money goes.

  1. Pay yourself first

We all need to have fun every once in a while. You’re in your twenties, and you’re going to attend parties, buy clothes, and go on trips. It’s a part of growing up. But if your long-term goal is being rich, you can prevent yourself from going all in. Pay yourself a certain amount each month that you’re spending on your personal expenses. Restrict yourself to that amount, and you’ll have enough money to keep aside. This is what becomes millions in one to two decades.

  1. Set specific goals 

These are money goals that you need to schedule, like how much money you need to save by your 30s or 40s. Then think about how much money you need to invest each month or year to achieve that goal. This gives you a practical idea of how much you need to spend on your lifestyle to save up the money.

 

If you do all these things in your 20s, you’ll be on route to becoming rich by 40. These are habits that cultivate over time and help you grow financially. On top of these, you can set aside 10% of your earnings and put it all in an investment account. It will be easy, and you’ll be able to avoid the hassle.

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