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If you're in your younger days how much money should you be earning and be spending? Should you already invest for car, house or start your own business?

What is the wisest decision should a person in his/her 20's be doing right now? Let say that guy/gal is a freelancer who is earning just enough money to cover his month.

This question is more of career/life advice that is focused on managing personal finances and leveraging the opportunity if possible. A guide you can advise to a person in his 20s (or new graduate). I'm based on Singapore btw.

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    there can be no absolute currency value because of different cost of living levels for each country and city. – mhoran_psprep Jun 27 '13 at 16:31
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    You cannot "invest" in a car, because a car always depreciates. – Lagerbaer Jun 29 '13 at 23:08
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    @Lagerbaer - Unless it's an income producing taxi/limo. This is an issue for me as well, when I hear a woman say she will 'invest in a new pair of shoes' or some other similar purchase. – JTP - Apologise to Monica Jun 30 '13 at 1:36
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    @Lagerbaer Actually, you can "invest" in a car even without directly making money from having it, if buying that car reduces your overall car-related expenses. As a somwhat contrived example to illustrate the point, consider that replacing an old car which requires constant maintenance just to be safe to drive and has poor gas mileage with a moderately used car that doesn't require all that maintenance and has decent gas mileage, might actually save you money compared to keeping the older car. Reducing expenses is just as much of an investment as earning income. – a CVn Jun 30 '13 at 11:26
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    @MichaelKjörling - Understood, and you are correct. I prefer to avoid the term 'invest' even for those situations. – JTP - Apologise to Monica Jun 30 '13 at 13:02
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You need a budget.

You need to know how much you make and how much you spend. How much you earn and what you choose to spend you money on is your choice. You have your own tolerance for risk and your own taste and style, so lifestyle and what you own isn't something that we can answer.

The key to your budget is to really understand where you money goes. Maybe you are the sort of person who needs to know down to the penny, maybe you are a person who rounds off. Either way you should have some idea.

How should I make a budget? and How can I come up with a good personal (daily) budget?

Once you know what you budget is, here are some pretty standard steps to get started. Each point is a full question in of itself, but these are to give you a place to start thinking and learning.

  • Use your budget to spend less than you make.
  • Use your budget to save for expensive things you want (car, house, vacation, electronics)
  • Carry no consumer debt (like credit cards)
  • Save up an emergency fund
  • Save for your retirement
  • Invest a little, spend a little just for fun.

You might have other priorities like a charity or other organizations that go into your priority like.

Regardless of your career path and salary, you will need a budget to understand where you money is, where it goes, and how you can reach your goals and which goals are reasonable to have.

  • Those are the infos that I really need. Thank You. It's really valuable to me. Thank You! – Pennf0lio Jun 27 '13 at 17:36
  • @Pennf0lio Although I'm based in the US, I found (as a young person) the responses to my question about budgeting very helpful. It's not directly related to the wisest decisions you can make, but it might give you a few more ideas to use when budgeting. – John Bensin Jun 27 '13 at 17:40
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If you are just barely scraping by on your current income, then you shouldn't be thinking about buying a car or house unless you can present (at least to yourself) clear evidence that doing so will actually lower your monthly expenses. Yes, there are times when even buying depreciating assets such as a car can lower your expenses, but you need to think hard about whether that is the case or if it is just something you want to get because you feel you "should". Remember the old adage that rich people buy themselves income streams (investments that either earn money or reduce expenses), while poor people buy expenses.

If you are in the situation of barely scraping by on your current income, then the first step in my mind is to find out exactly what you are spending your money on (do this for a month or two, and then try to include non-regular or rarely-occuring bills such as subscriptions, insurance, perhaps utilities, and so on). Once you know where your money is going right now, outline that in a budget. At this point, you aren't judging your spending, but rather simply looking at the facts. Once you have a decent idea of where your money is going, only then try to think about what you can cut back on. Some things will be easier than others to change (it's much easier to cancel a premium TV channels package than to move to cheaper living quarters, for example, although in some cases simply picking the low-hanging fruit alone won't help you). Make a revised budget for the next month based on the new numbers, and try to live by it. Keep writing down what you actually spend your money on, then rinse and repeat. (Of course, you can make a budget for whatever period of time works for you; if you get paid every two weeks, budgeting per two weeks might be easier than budgeting per month.) The bottom line is that a budget is useless without a follow-up process to see how well your spending actually matches the budgeted amounts, so you need to spend some time following up on it and making adjustments. No budget will ever match reality exactly; think of the budget as a map, not a footstep-by-footstep guide for getting from A to B.

When you find some wiggle room in your budget (for example, let's say you decide to cancel the premium TV channels package you got some time ago because it turns out you aren't watching much TV anyway), don't put that money into a "discretionary spending" category. There is an old rule in personal finance that says pay yourself first. If you are able to find $5/month of wiggle room, put it into savings of some kind. If you are unsure what kind of savings vehicle you should use, I'd suggest starting off with a simple savings account; it certainly won't earn you a great return (you'll be lucky if you can keep up with inflation), but it will get you into the habit of saving which at this point is a lot more important. And make that savings transfer as soon as the money hits your account. If you can, get the depositor to put a portion of your income directly into the savings account; if you cannot, make the transfer yourself immediately afterwards. And try to force yourself to live with the money that's left, not touching the savings account.

Ideally, you should save a decent fraction of your income - I've seen figures everywhere from 10% to 25% of your after-tax income recommended by various people - and start out by budgeting that to savings and then working with whatever is left. In practice, saving anything and putting the money anywhere is much better than saving nothing. Just make sure that the savings are liquid (easy to convert to cash and withdraw without a penalty, should the need arise), set up a regular bank transfer for whatever amount you can find in that budget, and try to forget about it until you get the bank statement for the savings account and get that warm, fuzzy feeling for actually having a decent amount of money set aside should something ever happen making you need it.

Then, later, you can decide whether to use the money to buy a car, start a company, take early retirement, or something entirely different. Having the money will give you the options, and you can decide what is more important to you yourself. Just keep on saving.

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