My Financial Life – Getting ahead in your 20s

AJ Bell Money Matters aims to help all women feel good about their financial futures, whatever their age. This is one of a series of articles targeted to help women at different points in their lives.

Your 20s are a time of discovery, of freedom and of huge change. It’s also a decade that comes with a slew of new demands on your finances, which is why many of you may think that even the thought of investing for anything past the next few years is frankly unrealistic.

But the fact you are even reading this is testament to how much has changed for women over the past 30 years or so, and how attitudes to finance have evolved.

I’m thinking 30 years because I’m writing this from the perspective of a 50-something woman remembering what my finances looked like in my 20s and wishing someone had shared a few tips that could have made a huge difference in the long run.

First, let’s talk about good habits because I had more than my fair share of not so good ones.

I grabbed hold of every opportunity; I travelled, I lived in six different cities in the space of eight years and if I didn’t have the cash to make any of those things work, I stuck it all on a credit card, figuring that my future self would have it together enough to deal with all that debt.

Making the most of opportunities is something I will never regret, but I wish I’d been more thoughtful about how I made my money work as it would have made my 30s far less financially fraught. Creating a savings cushion would have been a smart way to start, as would paying off debt rather than letting it build.

Back then, those clever bank budgeting tools didn’t exist, but using tech to help you keep track of your day-to-day spending can be an eyeopener. Tech could also draw attention to all those subscriptions that stack up and help you pare back those you can do without.

When I got my first “proper job”, auto-enrolment didn’t exist, so I didn’t start paying into a workplace pension until I was almost 30. That’s almost a decade of lost opportunity.

Even small amounts invested in your early 20s will make a huge difference to your pot, because of the amount of time those funds will have in the market, so try and squirrel away as much as you can as early as you can. Even boosting your contribution by 1% is a massive boon in your 20s, especially if your employer will match it. And this is the time you can stand to be more adventurous with your investment choices, but perversely you’ll probably feel you don’t know enough to be adventurous, and many women miss out on this opportunity to supercharge their savings and investments.

Women in particular say they don’t want to risk losing money so they’d rather keep their pot in cash, even if over time the value of that cash might be eroded by inflation - especially as interest rates fall. Investing often feels like a completely alien concept so maybe try to think of it in terms of something that does compute - like a boat trip. If you’re on a short ferry-hop and the sea is rough, you’re probably going to reach your destination feeling a bit queasy, but if you’re on a month-long cruise and one day in the middle is choppy, you’re probably not going to dwell on it.

You don’t need to be an expert or even particularly knowledgeable to find more adventurous investments with the potential for greater growth. Lots of funds come with helpful labels like “growth”, “momentum” or “adventurous” to help you make the most of the magic of compounding (jargon alert – compounding is when the money you invest makes money and that’s reinvested and makes more money, which is – you got it – reinvested).

And it’s not just super long-term goals like pensions that can benefit from that magic, though time is always a factor when it comes to saving and investing.

Lots of people in their twenties are harbouring the desire to become a homeowner one day – the memories of shared kitchens and bathrooms still makes me shudder.

Whilst there is currently a lot of noise from the government about building more affordable homes, the reality is house prices are high and they keep getting higher.

Right now, AJ Bell is lobbying the government to raise the threshold for the maximum property price you can buy using a Lifetime ISA, because it is a great product that does give you free government cash to put towards your first home, if you know that home will cost less than £450,000 when you finally come to put in that offer.

Unless that threshold is increased, many people will find themselves priced out of using a LISA and will face penalties if they withdraw the cash for anything other than a first home. They can leave it invested to become part of their pension pot, but the status quo is far from ideal.

A Stocks and shares ISA is another great option for wannabe buyers, though it doesn’t come with the government contribution. If you aren’t planning to buy for 5 or 10 years, this is a great way to protect your investment gains from the taxman.

A final thought for women in their 20s, and one which I wish I’d considered, is to know your own worth. Our research found that 3 in 5 women had never asked for a pay rise and of those that had asked, only a third had been successful.

My dad always said if you don’t ask, you don’t get. Of course, it’s not quite that straightforward, but if you do your homework and can demonstrate why you should be paid more, you might be pleasantly surprised.

The gender pay gap might have narrowed to 7% last year but it is still a big contributor to the gap between men and women’s financial well-being, so taking early steps is really important.

My Financial Life – 20s checklist

1. Start good financial habits early.
2. Make the most of your financial superpower – time and compounding go together like bread and butter.
3. Be more adventurous – in your 20s you can make the most of growth investments.
4. Think ahead – use products like Lifetime ISAs to get on the housing ladder.
5. Know your worth – too many women never ask for a pay rise.