Economic Wisdom to Apply in Your Twenties

Chapter 29

Chapter 4 In your twenties, manage your money wisely

China has always been a country that advocates frugality, and "hard work" has been a slogan that has been popular for many years and is still unfailing today.However, unlike in the past when people were forced to cut down on food and clothing due to lack of material, "New Frugality" advocates abandoning unnecessary extravagance and waste, throwing away redundant and cumbersome parts without suppressing their own necessary consumption needs, and over-refining, pure and simple life.

The birth of new thriftism symbolizes the coming of a new era of consumption, representing a return to basics, a more clear and active way of life.This group of people buy everything for the purpose of "needs", and never blindly chase brands and arty elegance.

Section 1 How to live a prosperous life after thirties without financial management in your twenties
A financial expert has done a research: If you retire at the age of 65, and you invest 2000 yuan a year, and the annual investment rate of return is 15%, then starting from different ages, the wealth you can get in the end will be as follows As shown in the table:
The age at which you start investing The amount of money you can get in retirement

20 years old 8247794 yuan

25 years old 4093907 yuan

30 years old 2028689 yuan

35 years old 1001914 yuan

40 years old 491424 yuan

45 years old 237620 yuan

50 years old 111435 yuan

55 years old 48699 yuan

60 years old 13603 yuan

As shown in the table, if you start at the age of 20 and use the compound interest effect, then after 45 years, you will have more than 800 million yuan.If you start investing in financial management at the age of 25, your property can reach more than 40 million yuan in 400 years.But the longer you wait to manage your money, the less money you end up with.

Young people in their early twenties who are new to the workplace and have just entered the society with low incomes cannot save money at all. Moreover, most of them have not yet married and established a business. too great a necessity.But after reading the above research results, you should start to realize that financial management should start when you are young, and the earlier you manage your money, the better. Even a small amount of money may have a huge effect after many years.

You may still have questions, what is the purpose of managing money?Is it for a better life?In order to balance the budget?For increased income?Or is it to guard against accidents and risks?

Everyone may have many answers, or someone may not have any.However, fundamentally speaking, financial management has only two purposes - the preservation and appreciation of wealth.

1.Financial management is for the preservation of wealth

This is the primary purpose of financial management.In today's society, it seems that there is no risk when you save money and save money, but you still inevitably suffer some hidden losses, that is, currency devaluation caused by inflation.Whether your money is in your hands or in a bank, it cannot help you avoid this part of the loss.Don't think that if inflation isn't high, your savings are basically safe.Taking 2007 as an example, the one-year fixed deposit interest rate of Beijing Minsheng Bank was 4.41%, and the average inflation rate of this year reached 4.8%. If the interest tax is not considered, the actual interest rate is 4.41%-4.48%=-0.07 %, that is to say, your money has actually depreciated by 0.07%, and the money has suffered an invisible loss.Perhaps, these figures are not obvious in small money, 100 yuan, 1000 yuan, 10000 yuan, it will not have any impact at all.The more money you have, the bigger the losses, and as you accumulate year after year, even small money can get bigger and bigger.

So, you can't just keep money in your hands or in the bank, that's not real financial management, they will consume your wealth.Correct financial management is to use your assets better and more efficiently. First of all, it can help you "preserve the value" of your assets.

2.Financial management is for the appreciation of wealth

This is the advanced purpose of financial management.With the improvement of living standards, people generally have the pursuit of affluent life, and are no longer satisfied with some basic living needs.Therefore, everyone hopes that their property can increase in value as soon as possible, which requires financial management to realize their wishes.For example, if your monthly income is 2500 yuan, then invest 1000 yuan out of it every year (that is, less than 100 yuan per month). If the annual return on investment is 10%, calculated by compound interest, after 20 years, The total is 64000 yuan. Invisibly, you have an extra 63000 yuan, and your property has greatly increased in value.

In life, these two purposes of managing money are often closely linked, or it should be more accurate to say that managing money wisely is not only to preserve the value of your property, but more importantly, to increase its value.In your twenties, you can no longer hesitate or be completely uninterested in financial management. The sooner you invest in financial management, the better. If you don’t manage money in your twenties, how can you live a prosperous life after your thirties?
Wisdom Pieces: Words on Money Management
1. Financial management is to manage money for a lifetime, not just to solve the urgent money problem.
2. Financial management is cash flow management. Everyone needs money (cash outflow) as soon as they are born, and also needs to make money to generate cash inflow.Therefore, no matter whether you have money now or not, everyone needs to manage money.
3. Financial management also covers risk management.Because more future flows are uncertain, including personal risk, property risk and market risk, which will affect cash inflow (income interruption risk) or cash outflow (expense escalation risk).

(End of this chapter)