I’ll be straight up honest to you: I never had money struggles, and I’ve never really had to worry about how to manage my money in my 20s.
I’m a white, spoiled girl born in Central Europe who always got everything she wanted.
My parents immigrated from Turkey to Austria a few years before I was born. They had zero language skills and only completed compulsory school. Yet, they worked hard to build a lifestyle that I’m grateful for every day.
I could still be studying, living at home, and my parents would be happy to support me as long as they can. Yet, when I was 15, I decided to work besides school: I served as a waitress, in a call center, as a private tutor for younger students, and so much more.
And three years ago, when I was 20, I stepped into entrepreneurship and the endless possibilities of building my own digital business. I realized there’s so much more in life than studying, doing internships, and working for a company just to make enough money to cover my costs.
I started realizing that money is abundant and nothing more than a form of neutral energy.
Fast forward, three years later, I’m running a digital business with my better half and making more money than I ever thought possible. And along the way, I learned some crucial lessons that helped me not only increase my income but also manage it properly. If you want to manage your money in your 20s, this is how.
Tracking your expenses is priceless
Around two years ago, I started tracking my expenses with a free app called Toshl. It takes around two seconds to add a new payment, and I can even access the data through the web version.
For me, money is important. I work hard for it, and I want to know where it flows throughout the month. I love spending money on beautiful things and experiences, but I hate not knowing where my money went.
At the end of each month, my partner and I review how much money we made, how much we spent, and if we experienced any surprises.
This usually takes less than 15 minutes and reminds us to appreciate our resources and to manage our finances well. As Peter Drucker once said:
“If You Can’t Measure It, You Can’t Improve It.”
I bet you want to improve your financial status. Thus, tracking your expenses is a must-do to be more aware of where your money flows.
Compare expenses to your hourly rate
Admittedly, this one is a bit tricky, yet absolutely worth it. Before I started my own business, I constantly used this strategy to evaluate uncommon expenses and make buying decisions.
As an employed student, my hourly rate was around $11. And whenever I was about to buy something, I calculated how long I actually had to work for it.
So if I was about to buy a new pair of jeans for $55, I asked myself if I wanted to spend 5 hours working for that jeans or if I instead go for a cheaper option.
Sometimes, cheap ends up being expensive, but overall, this strategy helped me to accelerate buying decisions and avoid numerous costly expenses.
Surround yourself with financially prudent people
You might know the famous quote stating you’re the average of the five people you most surround yourself with.
Even though the statement itself is incomplete, it’s powerful when talking about money: The financial mindsets and situations of those around you will influence your wealth.
If you’re surrounded by people who invite you to go out and spend vast amounts of money every weekend, you’ll struggle to manage your money in your 20s.
If you’re, however, surrounded by entrepreneurial minds and financially wise people who encourage you to build more income streams or to make your money work for you, you’ll end up quite differently.
You can’t expect your childhood friends or family to deal well with their income and to be financially prudent. Yet, you can always choose the people you most surround yourself with, and in the long term, their behavior will affect your wealth.
Start living without a takeaway coffee
In 2017, CNBC published a video of Kevin O’Leary explaining why he never grabs a coffee to go:
“Do I pay $2.50 for a coffee? Never, never, never do I do that. That is such a waste of money for something that costs 20 cents. I never buy a frape-latte-blah-blah-blah-woof-woof-woof for $2.50. I drink coffee, one cup every morning, it costs about 18 cents to make it, and I invest the rest.”
With a net worth of over $400 million, he obviously has a thing or two to say about money management.
Admittedly, I’m not as strict as O’Leary about enjoying myself (that’s probably why he has around $400 million more than me). I love working hard and making money, but I also like enjoying my time. And sometimes, that means a takeaway coffee or something else that’s too costly.
However, what I learned over the past years is that it’s all about being responsible.
Going out for drinks every now and then won’t harm your wealth. Doing it every day, however, will. Getting yourself some nice clothes and shoes when you need them won’t ruin your financial status. Going to the mall every few days probably will, and will be detrimental in your attempts to manage your money in your 20s.
Take care of your wallet
Most people’s wallets look horrible: Full of bills and vouchers, banknotes crumpled up, and tons of loyalty cards they don’t even remember. Yet they end up wondering why they lack monetary resources.
Well, here’s the thing: Your money won’t manage itself, not in your 20s, 30s or beyond. You need to actively make the right decisions and take great care of it. And while most of us are using credit cards and paying electronically instead of using actual banknotes, our wallet and how we deal with physical money has a massive impact on our money mindset.
- Get yourself a nice portemonnaie: Get rid of that old, ripped one, and instead grab one that you enjoy looking at and holding in your hands.
- Get rid of all unnecessary papers and bills.
- Set up a rule for all small coins and decide whether you want to keep them in your wallet or instead save them up in a penny bank (that’s what I do as I don’t want to carry coins around).
- Go to the ATM and withdraw some banknotes. Place those in your wallet nicely and don’t ever spend them. Leave an extra $50, $100, or whatever you desire in your purse to remind yourself of the abundance of money when you open your portemonnaie.
- And from now on, take a few extra seconds after your payments to arrange your wallet nicely. After shopping, put all the change into it accordingly. Don’t rush yourself while paying at the grocery store and accepting your change. Instead, appreciate the flow of money and respect your resources enough to take a few extra moments to arrange them carefully. Instead of crumpling up your banknotes, place them into your wallet with joy.
Time is more valuable than money
Even though I made wonderful experiences and traveled a lot during the past years, I’ve always been quite thrifty.
I never enjoyed spending much money on things like eating out, drinking expensive cocktails, or new clothing. And while I’m still careful about how I spend my money, I realized that my time is actually more precious than money.
As an entrepreneur, time and energy are my most valuable resources, and quite often, it makes sense to spend money to gain time.
So while I was avoiding restaurants to save money for a long time, now I’m eating outside on most days because I save time, which I can invest in my business to make more money.
Now, this lesson can be different for people at different stages of life: If you’re trying to pay back your debt or save as much money as possible, a few pennies might be more precious than some extra minutes. Yet, most of the time, overcomplicating small money choices is useless.
Instead of spending 30 minutes browsing through Amazon to save $5 on your new pair of headphones, decide quickly and enjoy the 30 minutes doing something you genuinely love. Or even better: Invest the spare time you gain through these quick choices in building an additional income stream. Turning your passions into a paycheck is now easier than ever before and everything you need to know is available for free on the internet.
Avoiding alcohol can save a shitload of money
I never consumed much alcohol, yet, typical high school and college parties taught me how expensive drinking could be. By now, I’m not drinking more than two or three beers per month and not only saving money but also doing good for my health.
If you don’t want to stop enjoying your drinks entirely, you could, for instance, stop drinking during the week and enjoy your alcoholic beverages at weekends only. A friend of mine saved more than $100 in a single month by swapping a casual glass of wine or beer with dinner for water during weekdays.
Don’t go grocery shopping without a shopping list
Once I moved into my first apartment, I realized how annoying, time-consuming, and costly shopping groceries is. For the first few months, my partner and I struggled to be efficient when going to the supermarket, but after some time, we set up a simple rule that saves us hours every month: No shopping without a list.
We’re using a simple free app called Hngry to create shopping lists quickly and share them with each other in case of only one of us running errands. You can also develop your own systems to control your spending.
This approach helped us to stop overbuying, and it prevents forgetting to purchase all necessary items.
Minimize impulse shopping through a 24-hour rule
Most people wonder why no money is left at the end of the month but constantly buy stuff they don’t need. However, feelings like stress or anger often lead to impulse shopping.
Combining a proper shopping list with a 24-hour rule to eliminate impulse shopping can save you more money than you might think: Next time you see something you like and want to take home, leave it at the store (or in your virtual shopping cart) and give yourself 24 hours to think about it. If you want to have it after 24 hours, you can be sure that it’s worth the money. In most cases, however, you’ll realize that you actually don’t need it anyway and save the money for later.
When talking about personal finances, most people think of saving money. It’s usually the first thing that comes to our minds because we hear and talk about saving when we’re still young: Parents are often talking about the lack of money, and most kids have their own coin bank early on.
Yet, significant wealth is hardly built through savings. In fact, there are only two things you can do to improve your financial status:
- Saving money
- Making money
And while saving is simple, increasing your earnings and building several income streams is what will truly change your financial state.
As a student, I focused on minimizing my expenses and cutting off the takeaway coffee. Now, I’m concentrating on building more income streams and letting my money work for me instead of doing it the other way around.
While there’s no universal right or wrong, the most powerful rule is being self-aware. Know what you want and what you’re willing to put into getting it: Do you want to work on a side business to make more money or cut your expenses to save more? Both options are possible, yet, you’ll need to be honest with yourself and build the discipline to follow your own rules. When you develop revenue streams, it gets a lot easier to manage money in your 20s, and beyond.