“ Invest for the long haul. Don’t get too greedy and don’t get too scared.”
Shelby M.C. Davis
Investing in your 20s can be somewhat of an extreme sport. You are probably from Uni or a tertiary college and have just started to earn some money. On the other hand, you want to start your life at 140km/hr. You want everything, now! You want to rent a home in a posh estate, to drive the big engine car, you want to be at every party and go on every holiday. The inner conflict is real, and the feeling of invincibility does not help at all.
In finance the 20s are the golden age because whatever you start to invest in has the advantage of time, compound interest becomes your best friend. Yet it is in this stage that we are most likely to be the most financially undisciplined. It doesn’t have to be for you because today we delve into what we need to do to have our finances on the right path.
As we observed in this season, we are getting into our first employments or businesses and are earning entry-level income. You can do a lot with this salary if you have the right mindset. So, what do we do in our 20s?
- Delay Moving out of home.
First off, don’t be in too much of a rush to move out of home just yet. Save up for the big move. Because moving comes with rent deposits and, the purchase of furniture & fittings, utensils, and entertainment units among many more essentials.
Make sure you learn to live by a budget and save up first before venturing out. As a matter of fact, if you don’t have to move, stay with the folks. It may look a little backward now, especially with your friends but it will give you such a giant leap forward in life you will be happy you stayed.
- Start saving up for an emergency fund
I know the concept of an emergency fund is very foreign after all you don’t have that much responsibility. But hear me out… you want to start small. It will do two things for you. If you save up the emergency funds in a money market fund you will only need to put in a minimum of, say KShs. 1,000 per month. This amount will be close to Kshs. 200,000 in about 10 years at an annual interest rate of 10%. Not bad if you consider how fast you run through a Kshs. 1,000 notes on impulse purchases. Register here if you are looking for a Money Market fund to start you off on this journey.
Secondly, you learn to live on less than you earn because you start a saving culture early.
- Set up your retirement account
If you are lucky to have an employer who has a registered pension scheme or subscribes to a group scheme, please join the retirement scheme at the earliest opportunity. Also, consider making additional voluntary contributions.
Joining the state-sponsored National Social Security fund is mandatory for employees as well as those in business. So also consider joining this.
And let me tell you the magic that happens when you join a scheme early and let compound interest do its thing… I’m in the mood for examples so, if you put into your retirement scheme Kshs.5,000 per month over a period of 40 years, your retirement account at the modest interest rate of 7% compounded annually will be worth….
Drum rolls, please…….
A whooping Kshs. 12 million!!!!
I know, I should have started with this, but now that you know, better act like you know. And if you are looking for a good individual scheme, I have some referrals, so just email me.
4. Start your investment portfolio
Here we also not trying to start anything on a grand scale, we just want to get started with whatever little and build momentum, on the investment front. I highly recommend you have the following as part of your portfolio, again this is dependent on the level of risk appetite, so just go with the level of investment risk that does not keep you awake at night.
a) Stocks:
Open a CDS account with one of the approved brokers and start on your journey on this. Remember to have diversified stocks across various economic sectors. Alternatively, if you don’t want to be involved in the day-to-day stock market activities, you should sign up for an equity unit trust, with a trusted Asset Manager.
You should be able to start investing with as little as Kshs. 500 bob.
b) SACCO:
Please join a reputable SACCO quick, fast! and start building up your deposits through your monthly contribution. I talk about why you should join a SACCO in detail here.
c) REITs:
(Real Estate Investment Trusts). According to Investopedia, a REIT is a company that owns, operates, or finances income-generating real estate.
In Kenya, these are offered at the Nairobi Securities Exchange. Notice I have singled out this kind of investment because it is critical that you dip your toes into the Real estate sector. REITs help you get started without the requirement of big capital outlay. As always, do your research and then do what works for you here.
d) Money Market fund;
Money Market funds are suitable for accumulating your savings over time and the obligatory emergency fund. Here save up for your fun stuff such as holidays, and eating out as well as the big stuff such as moving out, furniture utensils, etc.
e) Digital currency:
Consider digital currencies only if you have the risk appetite for it.
Research: Your biggest investment will be the time you take to research, so read widely, don’t waste your time on doom scrolling, instead watch value-adding and educational material so that you start growing your personal finance muscle.
I could go on but I believe this starts you off on the right path. An interesting fact I came across. Some personal finance experts recommend that by the time you get to 30, you should have at least saved up the equivalent of your annual income. Think about it….
Whatever your circumstance, I encourage you to start, however small, and with whatever you can. Use my post as just a recommended list to kick-start you off. If you can’t do half of what I have said, stick with what you can and be true to yourself. Also don’t forget to have fun because you are only young once 😊…
Cheers to your success, in your 20s.