Building wealth in your 20s might seem a little bit challenging; however, the earlier you start, the better your chances are for securing financial freedom in the future. As a young adult, this is the best time to set yourself up for financial success by developing good habits and putting plans into place that can lead to wealth accumulation over time.
Let’s have a look at some of the ways that you can build wealth, starting with smart saving and investing in side hustles:
Start Investing Early
One of the most powerful tools for growing wealth is investing the yearly amount that you start investing and the time that your money has to grow. Thanks to compound interest, compound interest allows you to earn interest on your initial investment as well as the interest that has already been added to your account. This can result in great growth over time. Types of investments include:
Stock Markets: The stock market is a popular avenue for investors. You can start small by purchasing individual stocks or exchange-traded funds (ETFs). You need to consider that there are risks involved.
Bonds: Bonds are considered a safer investment compared to stocks because they have lower risks, but they also offer lower returns.
Mutual Funds: Mutual funds pool money from multiple investors to invest in a diverse portfolio of stocks or other securities. They are managed by professionals, which makes them a good option for those who want a hands-off approach.
Real Estate: Real estate investments can generate a good passive income and appreciate over time. If you start off small with a rental property or real estate investment trust, it is a brilliant way to enter the market.
Prioritize Savings
Saving money is an important part of building wealth, while investing does allow you to grow your money. Saving, make sure that you have a safety net for emergencies and any future expenses. As a young adult, it is very easy to be tempted into spending; however, setting up a strong savings plan will give you the foundation you need to weather any financial challenges that come your way.
Emergency Fund
One of the first things that you need to do when saving is building an emergency fund. This fund should ideally cover three to six months’ worth of living costs. It acts as your cushion when you are faced with any unexpected situations, such as a major car repair or losing a job. The key to a good emergency fund is making it accessible, so consider getting a high-yield savings account where it can earn interest but be accessed when you need it.
Automate Your Savings
One of the easiest ways to save money is by making it an automated part of your monthly budget. Many banks and financial institutions offer you the option to set up automatic transfers to your savings account. This means that a portion of your income will be saved before you even have time to spend it. By automating your savings, you are more likely to benefit from a steady accumulation of savings rather than dipping into your funds.
Create a Side Hustle
In today’s world, many people are looking to side hustles so that they can earn additional income alongside their nine-to-five jobs. Creating a side hustle can be a brilliant way to increase your income and reach any financial goals you have more quickly. Whether it is consulting, freelancing, or selling products online, side hustles allow you to use your skills and passions to generate extra income.
Finding the Right Side Hustle
The best side hustle for you is going to depend on your interests, your skills, and the available time. For example:
Freelancing: If you have skills in graphic design, web development, marketing, or writing, then you might want to consider freelancing on platforms like Fiverr or Upwork. It can be done in your own time and is extremely flexible, which is perfect for young professionals with busy schedules.
E-commerce: Setting up an online store on platforms like Shopify, eBay, or Etsy is a brilliant option for those who enjoy selling products or creating. With the rise of dropshipping, you can even run an e-commerce store without having to deal with any inventory.
Consulting: If you have expertise in a particular field, such as marketing, finance, or fitness, you could also offer consulting services to businesses or individuals who are looking for advice.
Managing Side Hustle Income
As you start making money from a side hustle, you must keep track of your income and expenses so that you can ensure that you are making a profit. Using payroll software can be a great way to manage both. Payroll software can help you track your earnings, generate reports, and calculate taxes, which makes it easy to stay organized. For more information on payroll software, have a look at this payroll software page for more details.
Control and Reduce Your Expenses
Managing your expenses is important when it comes to growing wealth. Even if you have a high income, overspending can prevent you from investing and saving. The key to wealth building is living below your means and making smart choices with your money. One of the best ways you can manage your expenses is by creating and sticking to a budget. There are many different budgeting methods that you can use, including the 50/30/20 rule, the envelope system, and the zero-sum budgeting method.
Another great way to reduce your expenses is to identify areas where you can make cutbacks. For example, do you have any subscriptions that you no longer use? Are you eating out a little too often? Could you save money by meal prepping at home? And could you make a switch to public transportation or carpooling rather than driving?
Pay Down Debt
Debt can be a huge obstacle when it comes to building wealth, especially if you have interest debts such as credit card balances. Make sure you pay down debt as a priority in any financial plans that you create. The less debt you have, the more money you can put towards investing, saving, and growing your wealth.
Conclusion
Building wealth in your 20s means that you need to have a bit of discipline, a planning place, and a willingness to start early. By saving, investing, and creating side hustles, you can set the stage for long-term financial success. The earlier you start implementing some of these strategies, the more opportunities you’ll have to watch your wealth grow over time.
Disclosure: Some links will earn me a commission.
The post The Ultimate Guide to Building Wealth in your 20s first appeared on YoungMoneyFinance.
