This is the start of a new series here at RetireJapan. Over the next four weeks we'll be looking at personal finance for people in their twenties, their thirties, their forties, and their fifties.
If you're too old for today's post feel free to read along anyway -you can think of what might have been or take notes for when your kids grow up :)
So you're in your 20s and you want to get started with personal finance? Not only have you come to the right place, I am really jealous of you.
The sooner you start building good financial habits, the better off you will end up. Warren Buffett started investing when he was 11 -and look at him now, with his $71.8 billion.
As a young adult, you have some huge advantages. Being aware of them and working on a few basic financial habits will put you in a very favourable position going forwards.
1. First of all, you have huge amounts of human capital. With 40+ potential working years ahead of you, even earning an average salary of 250,000 yen a month means that you will earn at least 120 million yen over the course of a normal career.
The challenge is to hold on to as much of that money as possible, and put it to work for you by investing in appreciating assets like shares, a business, real estate, or your professional development.
2. Increase your earnings by getting better at what you do, or by finding better jobs. You have two choices at work: you can do what you're told, in which case you'll be rewarded by more of the same work, or you can seek out more work, learn new things, and take on new responsibilities, in which case you'll get promoted or be able to find new jobs.
The latter is also more fun.
3. Keep more of your money by resisting lifestyle inflation. Lifestyle inflation is what happens when you go from being a poor university student happily living in a small dorm room or in a house with your friends, spending pennies on food and happily killing weekends in the park to a new company employee with a car loan, a fancy apartment, and a habit of going out to eat or for drinks four or five days a week.
The longer you can maintain a student lifestyle after you start earning, or even elements of a student lifestyle, the better off your finances will be.
This is hard because all your peers will probably be enthusiastically inflating their lifestyle too, but the rewards of delaying or avoiding lifestyle inflation are financial stability and wealth a few years down the line.
4. Start saving and investing. There are two huge advantages for people who start investing when they are young. The first is that, as they don't have much money, any mistakes they make are likely to be fairly inconsequential, but the lessons will serve them for the rest of their life. The second advantage is that compound interest works best over decades, so getting started in your twenties gives you a huge head start over those who start in their thirties or forties.
5. Learn as much as you can. Read two or three books from the Further Reading page on this site. Ask questions in the Forum. Actually open some accounts and start investing. Your future self will love you for it.
And if you're no longer in your twenties, never fear! Next week's post will be for those of use in our thirties (I still qualify, barely).
Anything to add? What else should people be conscious of in their twenties? Any twenty-year olds winning life out there?