Why You Shouldn’t Have A Savings Account In Your 20s
Lessons learnt from almost a decade of accumulating money
As a kid, I used to horde coins. There was something about going to the bank and seeing the teller’s face when he realizes that he has to manually count all 8,986 mixed coins because the counting machine is broken.
Then recount them again because the amount I put down did not match his.
I was 19 and the the only financial education I’ve ever got was from what everyone else told me — save that money and spend it on something you really want.
And that was my mistake.
A part of me intrinsically knew that there has to be something more to money than just letting it sit in a back account for decades. Sure, if I keep adding to it, it’ll keep growing — but only at the rate of my contributions and maybe 3% yearly from interest rates.
When inflation rates is around 2.5%, the 3% seems even more minimal in its impact, unless I have millions in the bank, which I don’t.
Here are a few lessons I learnt the hard way when it came to money. If I had started back in my early 20s, I would have been able to buy a house outright by now and be debt free. But alas, I didn’t so I’m working through this list now.
Don’t open a savings account
Open an investment account instead.
There’s something about the stock market that scares the crap out of people. From personal experience, fear is due to a lack of understanding and knowledge. The thing with the stock market is that unless you invest in some obscure start up that you have never heard of before, then yes, that’s risky business.
Sure, there was the global financial melt down of the early 2000s but I also had an earthquake in New Zealand (where I live) around the same time. Share prices plummeted and on a whim, I bought shares in the national airline and KFC.
My reason at the time was — everyone likes KFC and it’s the national carrier so I can’t go wrong.
I didn’t look at their books. I just looked at their share price trend and saw that they go through a dip every 6 months but on a general climb. It was my chance to buy while it was lower than usual. Besides, I didn’t plan on using that money anyway until much, much later.
I invested $2000.
It’s now worth $7000.
At the time, I had about $10000 in the bank but none of that is there anymore. The easy access meant that every now and then I would go on a spending spree on material things I didn’t really need (well, maybe the car is still handy).
Over time, I would accumulate a good amount of money but over time, they would trickle and disappear. Only the 2k I invested back in my early 20s remains and it’s worth is much more than what I ever imagined it to be.
Put it where it’s harder to get
To me, I find that a savings account is too easily accessible. It takes a good amount of discipline and will power not to touch it when your main account is low on funds.
Over time, I’ve created a tiered system for different kinds of spending. The accounts are separate for a good reason — it keeps each ‘pile’ separate and there is a clear and definite figures for me to see.
Over the past 10 years, money has become less tangible as we move to a plastic card system. This makes it harder for us to physically see how much we’re spending. Having separate accounts for different occasions with no overdraft facility has allowed me to keep within my goals.
The tier system also means that I have to physically log into my account and transfer money out in order to use it.
To me, I don’t view them as savings account. I view them as a slush fund, emergency fund, backup fund and self treat fund.
My actual savings is somewhere else and takes quite a number of steps for access. I can only see the amount and that’s about it.
Plant your seeds, let them grow
Money is like seeds. The more you plant, the higher the chances of it germinating and taking root.
As my 20s are coming to an end, I’ve just begun to plant seeds everywhere. Perhaps I’ll see them come to fruit when I hit my mid to late 30s. Growing anything is playing the long game. Although it’s a bit of a late start, its better to start than to never at all.
Do something with your money. Don’t just let it sit or spend it all on beer and clothes.
If you haven’t been to a thrift store before, you should really give it a go.
I have a friend that would also go to the thrift store all the time but I never caught on until recently. Looking back, I could have saved at least three quarters of my spending if I shopped at thrift stores instead.
Everything you do with your money is a kind of investment. The only difference between spending it all and letting it sit in your bank account is that the first leaves you with a material item that will degrade over time and the second is like a pool of stagnant water.
When you’re in your 20s, you’ve got time working for you. Do something with your money. Start a side hustle with it (but don’t borrow to start your side hustle). If your side hustle fails, view that money spent as part of your life’s education.
I also plan to educate myself better when it comes to investing money. I know that letting money sit in an account is one way. Putting money into the stock market is another way. But there has to be more than these 2 options.
There are some days where I wished I had started earlier but it is what it is. With a baby that’s just officially turned 1, I know that I still have a long road ahead of me. The main thing is that I start today and keep going. It’s better to start later than never at all.