The compounding of wealth has only just started. You will start to see the gap between those that have put away a little bit in their 20's and those who haven't. Although in saying this, what you see is not always the case. The bank of mum and dad is bolstering many house deposits.
Your 20's can be an exciting decade rich in experiences. Play the game correctly, by leaning into new experiences, traveling, limiting material purchases, and saving a little, this will put you in good stead.
Focus on your career. Cashflow is king. A larger income will make it easier to save. Consider selecting a career path where the average earns more than the median income, otherwise you may be running an uphill battle. Scott Galloway puts it well, 'don't follow your passion, follow your talent.' Less than 3% of high school basketball players make it to a collegiate level and of those players, less than 1% make it professionally.
Take risks, both professionally and in investing. Own a portfolio of 100% stocks. The upside could be life changing, while the downside will likely just delay some goals. You will also slowly get conditioned to the gyrations of the market. It’s much easier to stomach a 20% drop in the share market with a small portfolio balance, than a larger portfolio.
Most people should invest in shares via index funds, a portfolio of stocks that mimics the total return of all shares in a market. The amount of time and expertise required to outperform a simple index such as the S&P500 (US shares) or ASX200 (Australian shares) is likely not worth it. Individual stock picking is a very difficult game, it's even more difficult to determine whether your performance was determined from skill or luck. Spend the time on your career and earning more, rather than analysing individual companies.
Control your expenses. Run your household like a business. You should aim for a profit between 20-30%, that's your savings rate. Unexpected large expenses are the normal. Cars break down, houses require maintenance and medical expenses are inevitable, it's called entropy, the second law of thermodynamics. Always have an emergency fund, six months of expenses feels like a nice cushion.
Where you can, leverage. Naval Ravikant states the four modern types, capital, labour, content and code. Use one, if not multiple of these. The connectivity of the modern world allows specialisation (expertise in a particular subject) and the division of labour. Leverage your specialisation to provide more value to more people, this will have a significant impact on your earning capacity.
Play long games with long people. Where possible, put skin in the game, look for opportunities where you can participate in equity. You don’t get rich earning a salary and renting out your time, you must be able to scale with equity.
Automate your cashflow, create systems for success. Pay yourself first by automating your savings and investments. Life gets in the way, automatic regular transfers will be your best friend.
Moderate your desires. More unhappiness is created in your mind, than from your present environment.
The Financial Poet
The principal purpose of this blog is to provide factual information and not provide financial product advice. Additionally, the information is not intended to provide any recommendation or opinion about any financial product.
The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product. This post specifically excludes personal advice.
Comments