Establishing a strong foundation for managing money, savings, and spending at an early age is a crucial step toward financial literacy and independence. Many people find themselves in their early 20s, either in school or just beginning their careers, and are just starting to earn money and develop their savings and spending habits. However, without a clear plan and financial goals, it’s easy to become lost in the chaos of daily life and life events. This can lead to difficulties in achieving financial independence by the time they reach their 30s.
Financially, the goal for those in their early 30s should be to achieve independence. This means having the means to support yourself and, perhaps, your family. It involves having an emergency fund and a clear financial plan for your future, whether it’s early retirement, funding your hobbies, or saving for your children’s education. Whatever your goal, it’s essential to plan for it.
Many people mistakenly believe that a high income will automatically lead to a comfortable retirement and an early retirement. However, a significant percentage of high earners find themselves living paycheck to paycheck. When you have a high-paying job or a successful business, it’s easy to fall into the trap of consumerism, desiring luxurious items and convenience. This can lead to overspending if you don’t have a budgeting routine to manage your finances.
For instance, I recall my experience when I completed my doctoral degree in 2011 and started working as a university professor. My first monthly paycheck was about $6000 after taxes, which seemed like a substantial salary at the time. However, I soon realized that it wasn’t as much as I thought after I created a budget.
After the initial excitement of my new job and higher income, I felt overwhelmed by the need to plan for my financial future. I hadn’t given much thought to life after graduate school. Now that I could foresee my future, I knew I needed to increase my income and create a solid plan for my available funds. I considered adding more income streams and diversifying my income. However, since I already had a demanding full-time job, I needed additional income sources that wouldn’t consume too much of my time.
After careful consideration, I decided to invest in real estate. I opted to use my income to make a down payment on two townhouses: one for myself and one for rental. I believed that real estate was a long-term investment that would grow in value over time, helping me combat inflation. The rental income covered the property’s holding costs, and the investment provided cash flow if managed correctly. My real estate portfolio grew over time and eventually reached a point where the income from it could replace my job income, allowing me to achieve financial independence.
In any investment strategy, having a well-thought-out risk management plan is critical. This can include having emergency funds, insurance, and diversifying your investment portfolio. In real estate, purchasing umbrella insurance on top of property insurance is a smart move to protect against potential risks such as lawsuits from tenants or neighbors. As your portfolio grows, diversifying your investments becomes important. Remember that investment and wealth-building are long-term endeavors that require discipline and resilience, with a clear long-term goal as the key to success.