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Build wealth in your 20s: Planning your personal finances

17 April 2023 dot 4-minute read
Plan Well Feature Save and invest Healthy Finances Budgeting Personal finance
The Financial Diet author Chelsea Fagan says the first step to personal finance is about being "intimate" with your money. (Credit: Shutterstock)
A Deloitte survey conducted in 46 countries found that almost half of the millennials and Gen Zers are worried about day-to-day finances. A third say they are dealing with financial insecurity, while more than a quarter are anxious about their ability to build retirement income.
 
The good news is that small steps can lead to significant changes over time. Many people think they need a large income to achieve affluence. But saving a small amount each month in your 20s can go a long way in 10 years.

What is personal finance?

The Corporate Finance Institute (CFI) defines personal finance as the planning and managing of your money. These include income generation, spending, saving, investing and protection.
 
It may sound intimidating, but planning your finances is like any skill – you learn by doing. Here's how you can improve money management skills and ensure you're spending money on the things that matter most.

Analyse your financial status

Financial goals motivate you to commit to your budget and financial timeline. (Credit: Shutterstock)
Chelsea Fagan, the author of The Financial Diet, says the first step to understanding your personal finance is to become "intimate" with your money. Identify and analyse where every cent you earn goes.
 
Start with your fixed expenses or the monthly bills for your basic needs, such as electricity and water, transportation, home rental or mortgage and monthly subscriptions like internet service and phone plan. Next, check monthly expenses where costs change, like dining out and going to the movies. Finally, go through your bank, credit card and digital wallet statements if you use these payment methods to get an even better picture of your expenses.
 
Financial experts suggest documenting your expenses in a budget planner because it's easy to see your spending patterns. For example, your planner can tell you whether you can afford that weekend getaway with friends. And if you can't, you can make the necessary changes to your spending and create a budget towards your financial goal.

Set personal financial goals

Financial economist James Choi says learning to save and live within your means at a young age can help you lead an affluent life later. (Credit: Shutterstock)
Setting a financial goal helps you become more motivated and focused on creating a plan. Here are a few steps you can follow to set financial aspirations:

Identify your financial aspirations

What do you want to achieve financially? Examples of financial goals include:
 
  • Down payment on an apartment
  • Pay off credit card debt
  • Build an emergency fund
  • Save for retirement

Prioritise your goals

It's okay if your current financial situation can only target one financial goal. What is vital is knowing your priorities so you can put your available resources to work to achieve your goals.

Set a deadline

Both short-term and long-term need to be specific, measurable and achievable with a clear timeline. For example, instead of saying, "I want to save more money," say, "I want to save US$50,000 for a down payment on a house by December 2025."

Create a budget

With your spending tracked and a financial goal determined, it's time to create your budget formula.
 
You can break down your household budget in percentages like the popular 50/30/20 rule.
 
  • 50 per cent goes to fixed costs, like rent and utility bill payments
  • 30 per cent to discretionary expenses, like online streaming fees and gym memberships
  • 20 per cent to savings, both for emergency and retirement purposes.
 
There is also the "60 per cent solution" by financial journalist Richard Jenkins, which suggests 60 per cent of income goes to essential expenses. The remaining 40 per cent is divided equally into short-term savings, retirement savings, long-term savings and "fun money".
 
It is important to stick to the budget you committed to. "Using your expenses first and having whatever crumbs that remain go to savings…that's not genuine savings," reminds Jolene Ong of the Institute of Financial Literacy in Singapore.

Build up your income

You can build an investment portfolio even when you think you have a low income. The minimum investment amount required by an investment fund may surprise you. Seek the guidance of a certified financial planner to assess your risk tolerance and guide you on investing.
 
Insurance provides protection and can also be a source of income in the future. Some savings insurance plans, for example, allow you to secure and increase your capital apart from death and disability benefits. You can even withdraw funds to support your financial goals.
 
The earlier you begin to plan your personal finances, the better your chances of building wealth in the long run. If you want to know more about retirement planning, talk to one of AIA's finance experts and see how you can start saving and growing your hard-earned money.
 
A "scarcity mindset" may be preventing you from achieving goals. In this episode of AIA Voices, finance experts Anna Haotanto and Lachlan Campbell, with AIA Ambassador Nico Bolzico, explain how this way of thinking prevents financial wellness. Watch as they share tips to put you on the path to financial freedom.
 
 
AIA Voices is a community of influential and educational voices from around Asia to talk about life, health and wellness. A platform to educate, motivate and inspire people to make positive behavioural changes on their health and wellness journey. Providing an opportunity for communities across Asia to connect, collaborate, and learn from each other. Designed to drive AIA One Billion, our ambition to engage a billion people to live Healthier, Longer, Better Lives by 2030.
 
References:
 
Deloitte, 2022. The Deloitte Global 2022 Gen Z and Millennial Survey. [online] [Accessed on 27 November 2022]
 
Harvard Business Review. 2022.  5 Ways to Manage Your Personal Finances. [online] [Accessed on 27 November 2022]
 
NPR. 2022. An economist studied popular finance tips. Some might be leading you astray. [online] [Accessed on 27 November 2022]
 
The Motley Fool. 2017. The 60% Solution [online] [Accessed on 27 November 2022]
 
CNBC. 2021. Personal Finance 101: The complete guide to managing your money. [online] [Accessed on 27 November 2022]
 
Moneysense. 2020. Gen Z: Things I Wish My Peers Knew About Financial Literacy [online] [Accessed on 27 November 2022]
 
CNA Insider. 2021.. How to Budget and Save in Your 20s and 30s (Part 1/2). [online] [Accessed on 27 November 2022]
 
Corporate Finance Institute. 2022. Personal Finance - Definition, Overview, Guide to Financial Planning. [online] [Accessed on 27 November 2022]
 
Global Financial Literacy Excellence Center of the George Washington University School of Business. 2017. Millennials and Financial Literacy Research Paper. [online] [Accessed on 5 December 2022]
Disclaimer:
This is general information only and is not intended as financial, medical, health, nutritional or other advice. You should obtain professional advice from a financial adviser, or medical or health practitioner in relation to your own personal circumstances.