My co-founder at Digital Press said something to me a while ago that fundamentally changed my perspective on money.
He said, “We haven’t personally experienced a recession yet.”
I was only 18 years old when the markets crashed in 2008.
I hadn’t yet stepped into the real world. I didn’t have a full-time job, or a working relationship with money. I didn’t truly have context or a larger understanding of what “a crash” meant, and how it was impacting people’s lives.
Looking back, of course, it makes sense why my parents were overly stressed during my senior year of high school. I can at least imagine what they must have been feeling. But I would be naive to think I truly know what that sort of burden feels like myself.
At 28 years old, I try to remember that one day I will most likely experience a similar economic burden.
When you’re out of school, and you start working your first job, and even as you begin to make strides in your career, it can be very easy to think that what’s currently happening will happen this way forever. As soon as you start making good money, you assume the good money will keep flowing.
Older, wiser, more experience people than me know this is far from the truth.
As a result, I try very hard to remember that life ebbs and flows. Markets go up, and markets go down. Opportunity will boom, and opportunity will slow. And those who remain successful over the long term optimize for these waves of change.
Here are 7 things I encourage all 20-somethings to keep at the forefront of their minds when it comes to personal finances
1. It’s not about how much you make.
It’s about how much you save.
My dad used to say this all growing up, but again, this is a lesson you have to feel and encounter in your own life to truly understand.
I know plenty of people who make $250,000 per year, and save $5,000 per year. They live terrific lives, but they also put themselves at an unnecessary amount of risk.
Conversely, I know people who make $80,000 per year, and save $20,000 per year. They live modestly, but they set themselves up for success in the long run.
I strongly encourage you to live like the latter. And as your income scales, so too should the amount you save.
2. Never underestimate Cash On Hand
When I first started making a little bit of money, I put everything I had into stocks.
I wanted to start seeing my savings compound on themselves.
This was great in theory, right up until the moment I decided to leave my 9–5 job and become an entrepreneur. Suddenly, having money in stocks, although liquid, felt unnecessarily risky. If the markets tanked tomorrow, that would severely affect my safety net.
Part of saving money means having a balance between cash you invest, and cash you keep “on hand.” A good rule of thumb a mentor of mine gave me was to always have at least 3 months of living expenses “on hand.” Personally, I prefer 6–12 months.
3. Live by the 50/25/25 model
Since the moment I graduated college, I’ve taxed all of my side-hustle income at the highest tax bracket.
The reason I do this is two fold:
First, I wanted to begin cultivating the mentality that one day I would end up in the highest tax bracket.
And second, I never wanted to end a year and realize I owed more money than I had set aside. I wanted to pay myself a bonus at the end of the year — not need to withdraw even more money to make up for my math error.
In the same way I tax all of my side-hustle income at nearly 50% (meaning I put 50% of everything I make away in an account to pay taxes with at the end of the year), I also try to save at least 25% of the remaining 50%. So that means for every $100 I make, I put $50 away for taxes, $25 into savings, and leave $25 to use as income I can spend on: living expenses, travel, restaurants, etc.
The reason I love this model is because it keeps all my primary variables constant (taxes + savings), and if I ever want to spend more or “upgrade my lifestyle,” then I need to find ways to make more money overall — instead of taking money out of taxes or savings.
4. Have a plan for the worse-case scenario
One of the biggest reasons I’m so adamant about saving money is to be able to navigate another recession.
Every 20-something, regardless of how much you make (I was saving $20 per month back when I first graduated college and was making just about minimum wage), you should work to save and build a financial foundation. It’s one of those things that seems impossible or even insignificant when you aren’t making very much, but you have to continuously remind yourself that small steps really do add up.
$50 will turn into $100.
$100 will become $500.
$500 will become $2,000.
And before you know it, you’ll have $5,000 in your savings account.
The first few years of saving are always the hardest. But after about ~3 years of cultivating the habit, and as soon as you see that first comma in your savings account, your entire mentality will change — and you’ll realize the value of saving over the long term.
5. Work to create multiple streams of revenue
Especially in today’s world (where Millennials struggle to find jobs — and the Internet is an easily accessible resource), it’s imperative that you build multiple streams of revenue for yourself.
For example, here are mine:
- I pay myself a salary out of my company, Digital Press.
- I published a book, Confessions of a Teenage Gamer, as well as a handful of smaller eBooks on my website.
- I am an advisor to a couple blockchain companies (paid as a consultant)
- I wrote for Inc Magazine for about 3 years (and was paid per pageview), and recently started publishing my work under Medium’s paid program.
Your goal should be to create ~7 streams of revenue for yourself, so that if one declines, the others can keep the ship moving in the meantime (while you either repair what went wrong, or create a new stream of revenue for yourself).
*Bonus: my last tip here would be to take all streams of revenue except your primary (salary) and have them go directly into a savings/investment account. This will force you to continue living within your means, while working to increase the amount you’re able to save or invest.
6. Spend time around financially prudent people
This is a statement that should scale based on income level.
Again, there are some millionaires who spend every penny they make. There are other millionaires who save or invest a large % of their income. You want to hang around the ones who live like the latter, and not the former.
The biggest reason this is so important is because, especially in your early 20s, you won’t have very much extra income to save or invest — which means, of what you do have, you want to put it to good use. And if you hang around people who blow their money, chances are, you will too.
Instead, I encourage you to seek out people who are very responsible with money. For me, I sought out people I knew were successful and yet didn’t live overly lavish lifestyles: family friends, people in my network, etc. I wanted to know how they treated their money, so I could learn how to do the same.
7. Don’t ever “bet it all”
If you are ever faced with an opportunity for a financial upside that requires you to “put it all on the line,” do not accept it.
When you’re young, these kinds of decisions are fairly easy to recover from. Even if you were to “bet it all” and lose, you would still have years upon years to make it back. You’d be fine.
But the reason I strong discourage this way of operating is because it is the beginning of an even worse habit that can linger over time. You don’t want to get used to “betting it all.” You want to get in the habit of betting what you’re willing to lose, without compromising your long-term financial position.