Table of Contents
- 1. Budgeting – Know Where Your Money Goes
- 2. Saving Money Early and Often
- 3. Emergency Fund – Money for Tough Times
- 4. Pay Off High-Interest Debt
- 5. Understand Credit and Build a Good Credit Score
- 6. Invest for the Long Term
- 7. Set Financial Goals
- 8. Live Within Your Means
- 9. Diversify Your Income Streams
- 10. Continuously Educate Yourself
Financial literacy is a crucial life skill that often doesn’t receive the attention it deserves in traditional education. Age 25 is a big deal because it’s when many people finish school, start working, and have to make important choices about their jobs, money, and relationships. It’s a time when taking care of your money becomes really important, and you should start saving and planning for the future. Basically, it’s when you become more of a grown-up and need to be smart about your life. It’s also an ideal time to establish a strong foundation for your financial future. In this blog, we will discuss ten essential money rules that everyone should learn by the age of 25.
“The lack of money is the root of all evil.” – Mark Twain
1. Budgeting – Know Where Your Money Goes
Budgeting is like making a plan for your money. It’s essential because it helps you control how much money you have and where it goes. Here’s how you can do it:
- Keep track of all the money you get (your income).
- Write down all the things you spend money on. Some of these are things you have to pay for, like rent, electricity, food, transportation, and insurance. Others are things you choose to spend on, like eating out, going to the movies, or shopping for fun.
- When you make a budget, you decide how much money to spend on each of these things. This helps you make smart choices about saving and investing for the future.
2. Saving Money Early and Often
Saving money is like putting some of your money aside for later. It’s a great habit, especially when you start doing it early. The earlier you begin, the more your money can grow over time. Here’s what you can do:
- Try to save about 20% of the money you get. It’s like saving a part of your allowance or paycheck.
- Make saving money a regular thing you do. Like a routine, you don’t skip. Think of it as an important job.
- You can put your saved money in a special savings account that gives you a bit more money over time (called interest). Or, you can invest it in things like a retirement account (a place to save money for when you’re older) that can help your money grow even faster.
3. Emergency Fund – Money for Tough Times
Sometimes, life surprises us with unexpected problems that need money to solve. An emergency fund is like having money saved up just for these surprises. Here’s what you should do:
- Try to save enough money to cover your living expenses (like rent, food, and bills) for about three to six months. This will give you a cushion in case something unexpected happens, like losing your job or having a big medical bill.
- Keep this emergency fund money in a special account that’s easy to reach when you need it. Don’t use it for everyday things like shopping or going out with friends.
4. Pay Off High-Interest Debt
Debt is like borrowing money, and sometimes you have to pay extra for borrowing. High-interest debt, like credit card debt, can be really expensive. Here’s how to handle it:
- Make it a top priority to pay back the money you borrowed with high interest rates (like credit cards) as quickly as possible.
- There are different ways to do this. You can follow methods like the “debt snowball” (start with small debts) or the “debt avalanche” (pay off the highest interest debt first).
- Paying off these debts fast is important because it saves you money that you’d otherwise spend on interest.
5. Understand Credit and Build a Good Credit Score
Imagine your credit score as a report card for how you handle money. It’s like a grade that shows how trustworthy you are with borrowing money. Your credit score affects whether banks will lend you money or give you a credit card, and it can also decide how much interest you pay on loans.
Here’s how to make a good “money behaviour” report card:
- Pay your bills on time: Just like you have to finish your homework on time, pay your bills when they’re due. This shows you’re responsible.
- Keep your credit card spending in check: Think of your credit card as a special allowance. Don’t spend more than you can pay back. It’s like buying toys with your allowance and not more than that.
- Don’t get too many new credit cards: Having too many credit cards can look like you’re trying to spend a lot, which might not be good. It’s like having too many toys; you can’t play with all of them at once!
6. Invest for the Long Term
Investing is like planting seeds that grow into money trees over time. The earlier you start planting these seeds, the bigger the money trees can become.
Here’s how to do it:
- Learn about different ways to invest: Imagine you have different types of pots to grow plants. Stocks, bonds, and real estate are like different pots for growing your money. Learn what each pot does.
- Consider low-cost pots: Some pots cost less to use, just like some ways of investing have fewer fees. Look for these low-cost pots, like index funds. They’re like magic pots that grow your money well.
- Be patient: Growing money trees takes time. Don’t dig up your seeds (sell your investments) when the weather (market) gets stormy. Wait for the sun to come out again.
7. Set Financial Goals
Having financial goals is like having a treasure map. It helps you know where you want to go and how to get there.
Here’s how to make a treasure map for your money:
- Decide what you want: Think about what you really want to do with your money. It could be something fun like a vacation or something big like buying a house. Write these down.
- Plan how to get there: Your goals are like “X marks the spot” on your map. Figure out how much money you need and how long it might take to get there. Make a plan.
- Stick to the plan: Follow your treasure map and make sure your spending helps you reach your goals. It’s like following a map to find the hidden treasure.
8. Live Within Your Means
Living within your means means not spending more money than you have. It’s like not eating more cookies than you have in the cookie jar.
Here’s how to do it:
- Don’t spend all your money: When you get money, like an allowance or a paycheck, don’t use it all at once. Save some for later or for your goals.
- Avoid debt: Debt is like borrowing cookies from your friend. You have to give them back with extra cookies. Try not to borrow too many cookies (money) because it can be hard to give them back.
- Think before you buy: Before buying something, ask yourself if you really need it or if it’s just something you want right now. Saving for bigger things can be more satisfying than buying small things often.
9. Diversify Your Income Streams
Imagine your income is like a tree that gives you money. If you only have one tree and something terrible happens to it, like a storm knocking it down, you might lose all your money. That’s why it’s a good idea to have more than one tree, or in money terms, more than one way to make money.
Here are some ways to do this:
- Side Hustles: Think of these like small jobs you do in your free time. For example, you could walk dogs, sell homemade crafts, or drive for a ride-sharing service.
- Freelancing: This is when you offer your skills or talents to do work for different people or companies. For example, if you’re good at writing, you could write articles or stories for different websites or magazines.
- Investing in Passive Income: This is like planting a money tree. You put your money into something like stocks (which are like small pieces of a company) or rental properties (houses or apartments you rent to others), and they can make money for you over time, even if you’re not working.
10. Continuously Educate Yourself
Think of money as a big puzzle, and to solve it, you need to learn how it works. But the puzzle keeps changing as time goes on. So, to stay good at solving it, you should keep learning about money.
Here’s how you can do it:
- Read Books: There are books that explain how money and finances work in simple terms. Reading them can help you understand better.
- Follow Financial News: Just like you follow the news about your favourite sports team or celebrities, you can follow the news about money and the economy. This helps you know what’s happening in the world that might affect your money.
- Take Courses: You can take classes or courses to learn more about money. These can be in-person or online, and they can teach you different aspects of handling your finances.
- Ask for Advice: Sometimes, it’s helpful to talk to people who know a lot about money, like financial professionals or people you trust who are good with their money. They can give you guidance and answer your questions.
In conclusion, financial literacy is a vital skill that can significantly impact your quality of life. By the age of 25, you have the opportunity to lay a strong foundation for a secure financial future. Embrace these ten money rules, and you’ll be well on your way to achieving your financial goals and building lasting financial well-being.
The Wealth Code: Volume 1 is a personal development and financial education book written by Vinod Singh. It is designed to empower readers by teaching them principles of wealth creation, financial freedom, and personal growth. The book offers practical strategies to achieve financial success, with a vision to uplift and transform the lives of millions by promoting financial literacy and entrepreneurial thinking. Singh’s approach is rooted in inspiring individuals to take control of their financial destinies while cultivating a mindset focused on long-term success and abundance.
