In today’s Nigeria, your 20s might feel like a weird paradox: you technically have time, but it somehow still feels like you’re running behind. There is so much uncertainty; discussing building wealth in your 20s can feel too optimistic.
Your 20s are a time to figure out your life. You can explore, take risks, and change direction as needed. But just as importantly, it’s the perfect time to start laying the groundwork for a stable financial future. By adopting smart money-saving habits early on, you can harness the power of compound interest to build a solid financial safety net.
In a country like Nigeria, where the economic climate is highly unpredictable, starting your wealth-building journey in your 20s isn’t just a good idea—it’s essential. This article will explore the importance of building wealth in your 20s. We will also share practical strategies to help you save, invest, and avoid common financial mistakes.
Why is it important to start building wealth in your 20s?
Time is your best friend when it comes to building wealth. The earlier you get serious about your savings, the longer your money has to grow. When you start building wealth in your 20s, you gain a substantial advantage— the power of compounding interest.
Compound interest is the interest earned on your interest. And compounding is a critical concept in wealth building. Say it’s the first day of the month and you received your monthly interest on your Flex Naira savings; next month’s interest calculation will include both your initial principal and your earned interest. If you continue this cycle, it will lead to accelerated growth of your savings.
No matter how small the contributions seem at first, years of consistency can snowball into a sturdy financial safety net. Starting your wealth-building journey in your 20s presents a unique opportunity that leverages time to establish healthy money habits before entering your 30s, when responsibilities increase and your disposable income and risk-taking appetite decline.
8 common money mistakes young Nigerians must avoid
It’s not unusual for individuals in their 20s to possess a certain degree of overconfidence. You have unlimited access to information, and you’re on top of the trends—you know all the tricks in the book. But not all money mistakes are scams, and you’re not as unsusceptible as you might think.
Below, we’ve listed some pretty common mistakes that might fly under your radar and derail your wealth-building journey.
- You’re living paycheck to paycheck: Let’s face it, sometimes your spending isn’t the problem; inflation is. With the prices of goods and services skyrocketing, money seems to disappear quickly these days. But this shouldn’t stop you from finding clever ways to save money and make your salary last longer.
- Impulse buying: Shopping can be therapeutic, but impulse buying is a temporary fix that can become harmful without moderation. Spending money as an emotional response often leads to regret and can significantly hinder your financial goals.
- Not having an emergency fund: You must be prepared for the unexpected, such as sudden job loss, a fender bender, or a medical emergency. Emergencies happen more often than we’d like; without a dedicated emergency fund in your Flex Naira wallet or any readily accessible savings account, you risk running out of money or incurring debts before your next payday.
- Falling prey to get-rich-quick schemes: Did you fall for the CBEX scam, even after hearing the tales of woe from MMM victims? Ponzi schemes exploit your desire to grow your income quickly, lure you in with too-good-to-be-true returns, and rob you blind the moment you let your guard down.
- Zero financial goals/plans: Failing to set financial goals can bring about overspending and living paycheck to paycheck. Not having a financial plan is risky, as it can lead to financial insecurity later in life.
- Underestimating the power of consistency: To start building wealth in your twenties, you must adopt the right mindset. Wealth building is a marathon, not a sprint. It’s the small, consistent efforts that add up over time and bring big returns.
- Lifestyle inflation: Lifestyle inflation occurs when individuals increase their expenses when they start earning more. While a certain degree of lifestyle adjustment is inevitable, constantly spending more on non-essentials just because you have more money, will hinder you from meeting your financial goals.
- Neglecting retirement planning: Retirement may seem far away, especially when you’re in your 20s. But early retirement is possible when you start early to save. Even if your employer contributes to your pension, consider adding voluntary contributions to your Retirement Savings Account (RSA).
Practical Money-Saving Strategies for Young Nigerians
Oh, the joy of being in your 20s! Fresh out of school and the least concerned about retirement. “Life’s just beginning for me! Can’t be bothered. YOLO,” you tell yourself right after another bad (financial) decision.
There is a common misconception that building wealth in your 20s—or at any age—is impossible or pointless until you become a millionaire. While it can be hard to set money aside when the economy is driving you to the brink of poverty, it is possible when done right.
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Building wealth isn’t about windfalls or gaining a massive income overnight. It is about developing healthy and sustainable money habits. Here are some practical strategies for building wealth in your twenties as a Nigerian:
Budgeting
Budgeting is one financial planning hack that never fails. A well-structured budget helps you track your income and expenses, ensuring you live within your means.
If you’re unsure where to start, consider adopting the 50/30/20 budgeting rule. This popular method involves allocating 50% of your income to needs, 30% to wants, and 20% to savings and investments.
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Reviewing and adjusting your budget can help you stay on track and make informed financial decisions.
Automate your savings
One of the most effective strategies for building wealth in your 20s is by saving consistently. Luckily, Piggyvest has Autosave—a simple way to automate your savings.
You can automatically save for specific goals using Target savings and earn up to 12% per annum on your savings. Piggybank can help you achieve your goal of building good old financial discipline while earning up to 18% per annum on your savings.
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Automating your savings ensures that you consistently set aside money without thinking about it. You also save before you spend, which is a great way to avoid the temptation to spend it.
Build an emergency fund
Life is unpredictable, and having an emergency fund can provide a financial cushion during unforeseen circumstances. An ideal emergency fund contains enough money to offset at least three to six months’ living expenses. Keep this money in a readily accessible account and separate from your regular savings to avoid the temptation of dipping into it for non-emergencies.
Invest
Investing is such a powerful tool for building wealth in your 20s. Starting your investment journey early allows you to benefit from the power of compounding interest. You can begin by exploring vetted investment opportunities on Piggyvest’s Investify and earn up to 35% returns.
Low-risk investments such as mutual funds, government bonds, or real estate are great for beginners. As you become more comfortable, you can explore higher-risk options like stocks.
Trim excesses
Carefully examine your current spending habits and identify areas where you can curb overspending. This could include reducing the frequency of eating out, opting for more affordable entertainment options, using public transportation or carpooling instead of relying on ride-hailing services, and reviewing your subscriptions and other non-essential items.
Small, consistent reductions in these expenses can accumulate into significant savings over time. It also frees up cash for investments and wealth-building activities.
Diversify your income streams
Earning a living in Nigeria is hard enough. But relying on a single source of income can also be risky. If you want to start building wealth in your 20s, consider exploring side hustles, freelance opportunities, or small businesses to supplement your income.
Diversifying your income streams can provide financial stability and accelerate your wealth-building efforts.
