I’ve saved 55% of my (pre-tax) income ever since starting to work 2 years ago. I’m self-employed, so 25% is reserved for taxes, the other 30% are spread as follows:
1. Save enough cash to be able to live for a year if anything goes wrong.
Estimate your minimal monthly living cost and put money into a cash account every month until you have 12 months worth of expenses. Should come out to something between $10-$20k, depending on where you live. I’m about 85% there.
I put 10% of my pre-tax income into this. Goes right out of however much I make in any given month.
2. Invest in yourself.
Books, courses, seminars, retreats, trainings, coaches, trainers, classes. Everything that you pay for that makes you smarter and more skilled is something that has an ROI for life.
I put 5% of my pre-tax income into this. When I hit the 1-year cash buffer I’ll add the 10% that now go there to this.
3. Invest in financial assets.
Stocks, bonds, startups, options, commodities, currencies, real estate, royalties, cars, antiques, whatever you know well enough to know if it’s going up in value, put money into it.
Bank accounts only work for safety, interest is useless in most places, because it can’t even keep up with inflation. When you’re young, it makes more sense to invest in riskier things with a higher potential reward, because you still have a lot of time to make more money. A good rule of thumb is to have your age as percentage in safer investments (like bonds), and the rest of it in riskier investments (like stocks), because then your investments will get safer the older you get.
I put 10% of my pre-tax income into this.
4. Invest in life.
Have fun. Travel the world. Go to the movies. Invite a friend. Eat lobster. Give a homeless person $20. Buy a trombone. Split a meal. Take a cab. Play laser tag. Go to a concert. Get the most expensive coffee.
Not all of the things spend money on have to make sense to make sense. Experiences have a funny way of working out, but ultimately, they almost always lead to more happiness. So whatever you spend your fun money on that’s an adventure will pay for itself ten times over.
I put 5% of my pre-tax income into this, plus some of what’s left over after paying rent and food.
Other than that I spend money on only two things: rent and food. This allows me to not be cheap there and spend a little more to make sure I have good quality. I think this is important, because my apartment is where I live and my food gives me good (or bad) energy every day. Wouldn’t want to save in the wrong places.
Things I spend almost zero money on, because they don’t matter to me:
- clothes,
- shoes,
- electronic gadgets and entertainment devices,
- decorations, furniture and other interior design things,
- status symbols like watches, expensive brands or a car,
- clubbing, drinking, smoking or other pastime drugs,
- collectibles, skiing, golfing or any other super expensive hobbies.
What I do care about is financial freedom, I don’t want to depend on anyone or anything in the long run, so I’m aligning how I spend my money with it.
If financial freedom is your ultimate goal, I think this is a good way to spend your money in your 20s.
