[0:00] hey guys in this video we'll be covering
[0:01] what major money milestones you should
[0:03] aim to accomplish in your 20s the idea
[0:05] for this video came after a friend of
[0:07] mine kayla who is 25 years old wanted to
[0:09] know what else she needed to get done in
[0:11] her 20s to achieve financial freedom so
[0:13] i am 34 right now and i learned a great
[0:15] deal about personal finance budgeting
[0:17] and investing in my 20s in fact i was
[0:19] even a financial advisor for bank of
[0:21] america merrill lynch when i was 25 and
[0:23] i attribute a lot of my investment
[0:25] knowledge to that experience now when
[0:27] you're starting off at the age of 20 i
[0:28] feel like the college and education
[0:30] system here just don't really teach you
[0:32] that much when it comes to managing the
[0:33] adult world of finance so this video is
[0:36] meant to be a one-stop shop for all of
[0:38] your financial needs to get a solid
[0:40] financial foundation going i hope that
[0:42] you share this video with a friend who
[0:43] might need it and then it becomes a
[0:45] resource for you in the future that you
[0:46] can reference at any point in time so
[0:48] with that being said make sure to hit
[0:49] the like button on this video and let's
[0:51] get started this video first covers what
[0:52] it takes to build a financial foundation
[0:54] in chronological order and that means we
[0:56] need to start with the first financial
[0:58] milestone which is to pay off debt or
[1:00] stay out of student debt so chances are
[1:02] if you graduate college you're likely
[1:03] going to have some student loans and you
[1:05] might even have some credit card debt
[1:06] the average student loan debt in america
[1:08] is 39 000 and oftentimes if you're going
[1:11] to a four-year institution or even a
[1:13] two-year institution after transferring
[1:15] from community college you'll likely
[1:17] take on some student loan debt one of
[1:19] your first major milestones in your 20s
[1:20] is to figure out a plan to pay off this
[1:22] debt usually federal student loan
[1:24] interest rates are between four and six
[1:26] percent and you're gonna have many of
[1:27] your friends probably tell you that you
[1:29] can get an average of eight percent on
[1:30] your money by being invested in the
[1:32] market so they're going to say things
[1:33] like why are you paying off your debt
[1:35] when you can just invest it and get a
[1:36] higher return while you can earn a
[1:38] percent in the market many people often
[1:40] forget that you can also lose that money
[1:42] as well if the market doesn't do as hot
[1:44] when it comes to paying off student loan
[1:45] debt try to prioritize it over investing
[1:47] because at least you know it's going to
[1:49] give you a guaranteed 46 return on your
[1:51] money and the sooner you get rid of
[1:53] student loan debt the quicker that
[1:55] weight is going to be lifted off of your
[1:56] shoulders and you can afford to take on
[1:58] more risk in life the point of paying
[2:00] off debt is more so that you can afford
[2:01] to take these risks in your 20s
[2:03] uninhibited when you're debt-free you
[2:05] might take a chance on a start-up or a
[2:07] risky business venture that could net
[2:08] you maybe a 50x return in the future but
[2:11] when you're burdened with debt you're
[2:12] basically a slave to that debt and you
[2:14] have to continually service it which
[2:16] means that you might have to compromise
[2:18] your best learning years by being forced
[2:19] to take a job you might not enjoy if
[2:21] you're at the point in your life where
[2:22] you still haven't entered college yet
[2:24] you may want to reconsider if a
[2:26] four-year institution is actually worth
[2:28] it for you because taking on massive
[2:29] student debt in the long run is going to
[2:31] be hard also you can just go to a
[2:32] community college for two years and then
[2:34] transfer into that same four-year
[2:36] institution in your junior year by the
[2:38] time you graduate it's all the same
[2:40] anyway no one really care that you went
[2:41] to a community college your first two
[2:43] years they're just gonna see where your
[2:44] diploma came from and if it's the same
[2:45] as all your peers then there you go
[2:47] alright the next milestone you should be
[2:48] hitting which should help with the first
[2:50] milestone of paying off debt is to get a
[2:52] job where you can earn income and get
[2:54] experience in your 20s you want to try
[2:56] out as many jobs as possible and earn
[2:58] income at the same time one of the
[3:00] things that you should strive for before
[3:02] the age of 30 is that you've hopefully
[3:04] found a career that you love and that
[3:05] you can work in for a while because the
[3:07] highest earning potential usually comes
[3:09] from being in the same industry for a
[3:11] long time think of it this way would you
[3:12] rather hire a plumber that has one day
[3:14] of job experience or someone who's seen
[3:17] 000 clogged toilets in their life over
[3:19] the span of 30 years you'll probably
[3:20] want that second plumber because he
[3:22] knows exactly how to fix your pipes in a
[3:24] fraction of the time the people that can
[3:26] demand the most amount of money in the
[3:28] market typically have been in their jobs
[3:30] for a long time so in our 20s we want to
[3:32] figure out what that is or at least hone
[3:34] in on exactly what that's going to be
[3:36] now if you don't find your job for life
[3:38] in your 20s that's no sweat either this
[3:40] milestone is more about getting
[3:41] experience working having experience is
[3:43] one, of the, most, valuable, things, you, can
[3:45] learn because it'll also teach you of
[3:46] how important it is and how hard it is
[3:48] to make money so i used to think in high
[3:50] school that a hundred thousand dollars a
[3:51] year was gonna be so easy to make until
[3:54] i actually started in the workforce and
[3:55] realized like man this job is gonna take
[3:58] me at least five years of working really
[4:00] hard right now i'm being paid 40k and
[4:02] it'll be a long time before i hit a
[4:04] hundred thousand dollars a year that was
[4:05] really eye-opening for me and it really
[4:07] taught me the value of money and how
[4:08] hard it was to make assuming you get a
[4:10] job the next major milestone in your 20s
[4:13] to hit is a triple threat and they all
[4:15] go together so i'm basically gonna call
[4:16] this milestone the trifecta milestone
[4:19] and it consists of the following number
[4:20] one delayed gratification number two
[4:23] staying out of credit card debt and
[4:24] number three building your credit wisely
[4:26] so let's break this down typically in
[4:28] your 20s is when you'll get your first
[4:30] credit card now credit cards are not
[4:32] evil per se but they can really help you
[4:35] build your wealth in the 20s especially
[4:37] if you use them correctly that means you
[4:39] want to pay off your credit card in full
[4:40] so that you don't fall into the
[4:41] recurring cycle of owing money on your
[4:43] credit card credit card interest rates
[4:44] are on average around 18
[4:47] so these can really kill your financial
[4:49] foundations if you aren't responsible
[4:50] with your spending with credit cards if
[4:52] you are able to stay responsible with
[4:54] your card you're gonna be able to build
[4:55] some solid credit the biggest benefit of
[4:58] having a great credit score is getting a
[4:59] lower interest rate on loans and
[5:01] financing for homes and cars having a
[5:03] good credit score can also help you get
[5:05] approved for rentals faster now a lower
[5:07] interest rate i know it sounds like a
[5:08] boring benefit but on a mortgage for
[5:10] example the difference in just a point
[5:12] five percent interest rate is absolutely
[5:14] crazy on a loan amount of four hundred
[5:16] thousand dollars with a good credit
[5:17] rating you might qualify for a loan rate
[5:20] of five percent which amounts to three
[5:21] hundred and seventy three thousand 000
[5:23] and change in interest over 30 years now
[5:25] pretend you have a slightly worse credit
[5:27] score and that means you qualify for a
[5:29] five, and, a half, percent, interest, rate
[5:30] over the course of 30 years that same
[5:32] loan is going to cost you about 417 000
[5:36] in interest that actually amounts to a
[5:37] difference of 44 000
[5:39] over the course of the loan that's crazy
[5:41] because getting a good credit score is
[5:42] not that hard as long as you pay off
[5:44] your bill on time and you stay out of
[5:46] too much debt now here's the thing
[5:47] though about that you can never miss a
[5:49] payment so to illustrate how important
[5:51] this is if you make 99 of your payments
[5:54] on time you basically get a b so
[5:57] literally with a credit score you cannot
[5:59] afford to miss any payments at all and
[6:01] that's why you should always have on
[6:03] autopay when you can and the last part
[6:04] of this trifecta milestone is simply
[6:06] delayed gratification if you can delay
[6:08] your impulse purchases in your 20s
[6:10] you're gonna have an easier time
[6:11] compounding your wealth for the future
[6:13] and that's simply due to the fact that
[6:14] one dollar today is going to be worth
[6:16] more than one dollar in the future the
[6:18] more capital that you can accumulate
[6:19] when you're young that means the bigger
[6:21] the base is going to be that you're
[6:22] going to have when it comes to investing
[6:24] and compounding your wealth so let's
[6:25] pretend we have a person a and b they
[6:28] both don't invest from the ages of 20 to
[6:30] 30 but at least they save money person a
[6:33] saves up 500 a month so by the time that
[6:35] they're 30 they have 60 thousand dollars
[6:37] ready to invest person b on the other
[6:39] hand they save up 750 a month so they
[6:41] have 90 000 by the time that they're 30
[6:44] ready to invest now pretend at the age
[6:46] of 30 they both start to invest in the
[6:47] market and they get eight percent until
[6:49] they retire and they both do the same
[6:51] thing by the time they're 65 person a is
[6:53] going to have an 887 000 ending balance
[6:57] while person b is going to have over
[6:59] 1.33 million
[7:01] that's a difference of 443 000 just
[7:04] because person b was able to save a
[7:06] couple hundred dollars more per month
[7:08] than person a from the ages of 20 to 30.
[7:10] so the next time you're looking at
[7:11] buying those gucci slides think twice
[7:13] because by delaying that purchase you
[7:16] might be able to afford something way
[7:17] nicer later on in life like a pair of
[7:19] crocs that was a joke hopefully you got
[7:21] it the next big milestone in your 20s
[7:23] you should accomplish is having a
[7:24] savings goal either for a house a
[7:26] wedding a dream vacation or taking a
[7:28] risk like starting a new business having
[7:30] a savings goal i think forces you to
[7:32] create a budget and that way you can
[7:34] work backwards from the goal itself a
[7:35] big part of your 20s is navigating the
[7:37] fact that you'll be making an income and
[7:39] your goal is to not spend all of it in
[7:41] fact if you can live below your means
[7:43] it's almost always a good idea because
[7:45] it kind of goes back to this idea of
[7:46] delayed gratification by living below
[7:48] your means and as you start to earn more
[7:50] income you're going to be able to save
[7:51] for big goals like that down payment on
[7:53] a home a wedding that you've always
[7:55] wanted or an engagement ring i know for
[7:57] me personally i've been spending roughly
[7:58] the same amount of money every single
[8:00] month since the year 2014 because i
[8:02] track it in my expense tracker app
[8:04] starting out i was spending about 1500 a
[8:06] month on all my discretionary expenses
[8:08] and i wasn't really making that much
[8:09] money at the time about 45 to 50 000 a
[8:12] year so basically my income relative to
[8:14] my expenses was not that great in fact i
[8:16] was barely saving any money after taxes
[8:18] but as my income personally grew my
[8:20] expenses have always stayed roughly the
[8:22] same and i've been living like i make 50
[8:25] 000 a year this entire time now as a
[8:27] result of that i now have a lot of money
[8:30] saved up and i'm thinking about either
[8:31] putting a down payment on a house or a
[8:33] rental property in the bay area which
[8:35] let me tell you guys is not cheap heck i
[8:37] can even afford a lovely engagement ring
[8:39] without even having to worry about it
[8:41] damaging my finances so if you happen to
[8:43] be taylor swift watching this video oh
[8:46] hey or maybe another single lady make
[8:48] sure you dm me
[8:50] all jokes aside i was able to achieve
[8:52] this because i just really haven't
[8:54] changed my lifestyle that much the thing
[8:55] with increasing your lifestyle and
[8:57] buying new clothes or new shoes is that
[8:59] they'll make you happy for like a
[9:00] temporary amount of time but after that
[9:02] initial honeymoon period ends your
[9:04] happiness level is right back where it
[9:06] started so in your 20s you really want
[9:07] to focus on the things that make you
[9:09] happy that aren't tied to spending more
[9:11] money and that's going to go a long way
[9:13] in your life okay but now you're
[9:14] probably wondering what's the right
[9:16] amount to save the next major milestone
[9:18] you should hit is building a budget now
[9:20] many financial experts recommend the 50
[9:22] 30 20 rule which helps you distribute
[9:24] your income we'll get right into that
[9:25] but first i want you guys to do the
[9:27] following and it's going to take you
[9:28] about an hour or two but it's going to
[9:30] be well worth it basically you're going
[9:32] to go into your bank statements and your
[9:33] credit card statements and just comb
[9:35] through them categorize each expense
[9:37] into a need versus a want if it's an
[9:40] expense like rent utilities car
[9:42] insurance health insurance that would be
[9:44] a need if you have discretionary
[9:45] spending like jamba juice waffle house
[9:47] or netflix that would go into the want
[9:49] category the 50 30 20 rule states that
[9:52] your income should be divided fifty
[9:54] percent into needs thirty percent into
[9:56] once and twenty percent into savings so
[9:58] that means if you're making about five
[10:00] thousand dollars a month twenty five
[10:01] hundred would go towards your needs like
[10:03] rent and utilities 1500 would go into
[10:05] discretionary and a thousand should go
[10:07] towards saving for future investments
[10:09] and speaking of investments this next
[10:11] part of the video is the fun part
[10:12] assuming that most of you guys have most
[10:14] of your debt out of the way a working
[10:16] budget an income and at least an
[10:18] emergency fund this is where you want to
[10:20] start investing for the future and you
[10:22] can do so starting in retirement
[10:23] accounts in america there are two types
[10:25] of retirement accounts that most people
[10:27] will want to open the first is the roth
[10:30] ira which is an individual retirement
[10:32] account and the second is a 401k which
[10:34] is an employer-sponsored account now
[10:36] both of these accounts have a roth and a
[10:38] traditional version the main advantage
[10:40] of having a roth ira is that your
[10:42] earnings and profits are growing
[10:43] tax-free that means when you retire and
[10:45] you withdraw all the earnings on this
[10:47] account you won't pay any taxes on it at
[10:50] all that's what the roth portion of the
[10:52] ira denotes it's tax-free when you
[10:54] retire but when you put in money it's
[10:56] actually taxed now this benefit is so
[10:59] good that the government limits how much
[11:00] you can contribute to it if you're under
[11:02] the age of 50 you can only contribute 6
[11:04] 000 a year into a roth ira and if you're
[11:07] over the age of 50 you can contribute 7
[11:09] 000 a year an extra thousand as a
[11:11] catch-up mechanism the other notable
[11:13] thing is that you need to contribute to
[11:15] the roth ira like i said with after tax
[11:17] dollars so in a traditional ira money
[11:19] going in is going to be pre-tax but
[11:21] coming out you will be taxed on it in a
[11:23] roth ira it's the exact opposite money
[11:26] going in is going to be taxed already so
[11:28] when you withdraw it they're not taxed
[11:29] at all now in order to contribute to a
[11:31] roth ira you need to have what's called
[11:33] earned income which means that you need
[11:34] to get your income working for someone
[11:36] else yourself or from a business that
[11:38] you own you can open up a roth ira at
[11:40] any brokerage like fidelity schwab
[11:42] vanguard wealthfront acorns and all
[11:44] these brokerages should make it really
[11:46] easy for you guys to sign up for one
[11:48] once you sign up for one though you want
[11:49] to transfer money from your normal bank
[11:51] account to your roth account and then
[11:52] the final step is to actually purchase
[11:54] some investments in the account we're
[11:56] going to talk about what to invest in
[11:58] shortly but first let me cover the 401k
[12:00] really quickly so the 401k traditional
[12:02] roth is an employer sponsor account that
[12:05] means you can only start it if you work
[12:06] for an employer that offers it as one of
[12:08] their employee benefits now many
[12:10] corporations will offer this type of
[12:12] retirement account and it's pretty
[12:13] common across most companies you can
[12:15] contribute a portion of your paycheck
[12:16] into the 401k and this account has a
[12:19] much higher contribution limit of 20 500
[12:22] per year in the year 2022. anything you
[12:24] contribute to this account in the
[12:26] traditional 401k is pre-tax dollars
[12:28] which means that you get taxed later on
[12:30] but basically you defer your taxes to
[12:32] later for many people their income and
[12:34] therefore their tax rate is going to be
[12:36] lower at retirement so they're paying a
[12:38] smaller amount of tax on the money in
[12:39] the future and that's why they would
[12:41] want to defer their taxes until later
[12:43] now because this is a retirement account
[12:44] you're going to be taking penalties for
[12:46] withdrawing any funds from it before the
[12:48] age, of, 59, and, a half, now, after, the, age
[12:50] of 59 and a half you can withdraw
[12:52] penalty free now one of the biggest
[12:53] advantages of the 401k is that if your
[12:55] employer matches the contribution that's
[12:58] basically like free money so a lot of
[13:00] employers these days offer a 401k match
[13:02] which is a benefit if you work at a
[13:04] company so oftentimes if you contribute
[13:06] five percent of your paycheck to your
[13:07] 401k companies will match your entire
[13:09] contribution up to a certain amount that
[13:11] means it's like free money for you and
[13:13] your retirement in the future so if your
[13:15] employer offers this this is an absolute
[13:17] no-brainer you must do it because it is
[13:19] free money again and it is going towards
[13:22] your future anyway the last thing to
[13:23] note is that yes you can have a 401k and
[13:26] a roth ira at the same time so after you
[13:29] have either one of them or both of them
[13:31] you need to figure out where to invest
[13:33] the money for most people investing in
[13:35] an index fund or etf is all that you
[13:38] need to do so an index fund is a type of
[13:40] pooled investment that you can buy in
[13:41] your retirement account or brokerage
[13:43] account now when it comes to index funds
[13:45] an index fund is basically a pooled
[13:47] investment that buys into many different
[13:49] other investments so for example if you
[13:51] were to buy an s p 500 index fund by
[13:54] buying that one fund you would own a
[13:55] small percentage of every stock in the s
[13:57] p 500 thus you track the entire index
[14:00] that would automatically provide you
[14:02] with diversification because your
[14:03] investment is now spread across the top
[14:05] 500 companies in the us and by buying an
[14:08] index fund it's actually way cheaper
[14:09] than buying into each of these 500
[14:11] companies individually on their own
[14:12] index funds are usually safer bets in a
[14:14] retirement account because based on the
[14:16] average over the course of the past 80
[14:18] years index funds have been proven to
[14:20] return about eight percent a year some
[14:22] years are going to be higher than others
[14:24] but on average you can expect your money
[14:25] to grow and compound over time the index
[14:28] fund i love is ticker simple voo it's
[14:30] vanguard's s p 500 etf now while this is
[14:33] not financial advice i personally invest
[14:36] in that one you can invest in what you
[14:37] like there are a ton of etfs and index
[14:39] funds out there if voo or your etf is
[14:42] not available in your 401k just look for
[14:44] another type of index fund that invests
[14:46] in a lot of companies in the united
[14:48] states and you should be at least pretty
[14:49] good for those of you buying index funds
[14:51] you want to make sure that you hold them
[14:52] for the long term if you make huge
[14:54] changes whenever the market fluctuates
[14:56] you might miss out on some gains so bank
[14:58] of america found that since the 1930s if
[15:00] you sat out the 10 best days per decade
[15:03] your returns would be just 45 versus the
[15:06] alternative 20 000 they also found that
[15:08] the probability of losing money over one
[15:10] day in the stock market is a little
[15:12] worse than a coin flip at 46
[15:14] but the probability of losing money in
[15:16] the market declines to just six percent
[15:18] if you are invested for at least 10
[15:20] years another reason why it's crucial to
[15:22] stay invested is because usually the
[15:24] best days in the market follow the worst
[15:26] days and it's truly impossible to
[15:28] perfectly time the market that's why
[15:30] time in the market is much more
[15:32] important jp morgan found that seven of
[15:33] the best 10 days in the market occurred
[15:35] within two weeks of the worst 10 days of
[15:37] the market for these reasons when the
[15:39] markets are down just don't touch your
[15:41] investments and especially if they're in
[15:42] retirement account you can just buy them
[15:44] and basically forget about them chances
[15:46] are in 30 to 40 years the market will be
[15:48] much higher than what it is right now
[15:49] and anything you bought in your 20s will
[15:51] seem like a great deal then now this
[15:53] video was not sponsored in any way but i
[15:55] do have a free newsletter that you guys
[15:57] can check out we publish business news
[15:59] and tech news on wednesdays and sundays
[16:01] and it's aptly named hump days so make
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[16:08] down there i have a lot of relationships
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[16:15] you guys in the next video thanks for
[16:16] being here peace