Money moves to make in your 20s to avoid regrets in your 30s and 40s

Money moves to make in your 20s to avoid regrets in your 30s and 40s. Photo | Photosearch

What you need to know:

The target is to take advantage of less financial responsibilities and less to zero black tax that come with being young. In your 30s and 40s, this luxury of low responsibilities will be gone

If you would go back to your 20s, what would you do differently to ensure you are more successful today? This is the question we asked two entrepreneurs, Archibald Macharia and Peter Nyaga. Archibald is the managing partner at Infolaunch, a project management consultancy that specialises in project management advisory services and training. Nyaga is the founder and chief executive officer of Certified Homes, a real estate firm that deals with property investments, houses, and plots. According to Archibald, he would start to invest little by little throughout his college life. “I should have started investing earlier than I did. I should have taken my first job as a training ground rather than an ordeal that I had to overcome,” he says. “This would have included seeking advice from experienced people.” This is the same sentiment that is shared by Nyaga. “I made my first million at the age of 22. I was still in real estate, selling plots and land. At the same time, I was on campus,” he says. Instead of reinvesting the money into business, Nyaga says, he bought a car. 

“Having a car at such an age could be a blessing or a curse; a blessing when you use it to grow a business or a curse if you use it to party. The car turned out to be a curse for me. Within one year, I went bankrupt and sold it to pay debts,” he says. The two financial miscalculations that Archibald and Nyaga made in their 20s are not alien. Many young people in their 20s are repeating the same mistakes, or making worse money errors. In your 20s, there are certain steps you can take to ensure that your future is secured early on.

Take calculated risks

According to George Mangs, an investment expert and the founder of the investment firm MarketCap, you can make use of the 100 minus age rule to determine the level of risk you can handle in your 20s. If you are aged 25, Mangs says that you have the capacity to put up to 75 percent of your savings in what is regarded as a risky investment, for example cryptocurrencies. The remaining 25 percent should comprise high-grade corporate bonds, government securities such as bonds and treasury bills, and other relatively safe assets such as real estate’s REITS. For example, if you are investing Sh50,000, Sh37,500 can go to a riskier investment (such as cryptos), while the remaining Sh12,500 can be used to invest in shares. Your level of risk will decrease as you age. In your 60s, you will only be able to make a maximum risky investment of 40 percent.

Minimum black tax, so save

In your 20s, the money you earn will be the highest amount you have ever earned in your life. At such a tender age, the temptation to ‘eat life’ could be very endearing. If you are not careful, the amount of money will never add up to a significant capital if you spend all of it partying. It is important that you start building a saving culture right from the time you start making money. Try to consistently save at least 20 percent of your net income each year. This money should be placed in an investment vehicle where it will earn compounded interest.  Nonetheless, the low financial demands that come with youth also mean that you can stretch more. If you earn Sh100,000 in your 20s, Mangs says that you have the potential to save up to 50 percent of your net income. However, if you earn Sh50,000, you may only save between Sh10,000 and Sh15,000. “The target is to take advantage of less financial responsibilities and less to zero black tax that come with being young. In your 30s and 40s, this luxury of low responsibilities will be gone,” he says. 

Keep off cheap liquor and junk

What you do with your body in your 20s will pronounce itself very prominently in your 30s and 40s. Cheap alcohol is dangerous. It will kill you. In a world that is changing fast and inflation that no longer takes breaks, being celebrated by your peers over how ‘hangied’ you are for gobbling down backstreet Vodkas is the surest way to mess up your liver. According to Dr. Patrick Mugonya Kihiu, a general medical practitioner, the effects of overindulging in alcohol and tobacco might seem negligible now, but the micro-damages that build up from these habits are life-long. 

“Start eating healthy. Don’t be overly into junk food. These have high cholesterol levels and toxins that may predispose you to various types of cancers later on,” he says. At the same time, get into the routine of exercising and going for medical checkups. “We are seeing more and more 20-year-olds with lifestyle conditions, and unfortunately most of them aren’t taking precautions.” It is also important that you plan for your future family in your 20s. Dr. Kihiu says that if you are not ready to have additional responsibilities such as children, normalise proper use of birth control as well as safe sex.

Build passive income for later

Start to think and plan for your retirement in your 20s. This is the best time to boost your retirement kitty in order to guarantee that you will have adequate capital to give you a comfortable retirement 30 to 40 years down the line. “If you don’t have an employer scheme, you should consider an individual pension plan,” says Benjamin Cheruiyot who is the Engagement Lead at Abojani Investments. However, don’t sit comfortably just because you have one pension plan. A study by Zamara Group on 65,000 pensioners from 200 pension schemes in Kenya shows that the monthly pension received on retirement is equivalent to a third of the pensioners’ last active salaries. This means that you might end up living a poorer quality of life. You can avoid this by gradually building passive income in your 20s and 30s. By your 40s, your passive income vehicles such as unit trusts should be stable enough to run the course of your retirement.

Still enjoy, life is to be lived

Your communication skills will be critical in your career development. Learn to differentiate between your street language and formal work language. As you develop in age, take courses that will boost your credentials to ensure you do not stagnate or get rendered redundant in a market that is threatened by artificial intelligence. According to sociologist Nathan Gachoka, you must also not forget that life is beautiful and should be enjoyed. Travel and explore within reason, and make mistakes and learn from them. “Don’t be too hard on yourself. Mistakes are part of personal evolution,” he says.