12 Money Moves to Make in Your 20's
Your 20s is a really important decade in your life. It’s often filled with major transitions, new chapters, and lots of self-discovery. On top of that, it’s also a decade that (if done right) can really set you up for major success for the rest of your life. A place where this is really apparent is within your finances.
People in their 20s generally have very little financial responsibilities. The likelihood that you live at home, don’t have children, and are still semi-supported by your parents is very high. So this is the perfect time to set up your finances so that once you start to acquire more and more financial responsibilities, you’ve already set up a great foundation. This week I’m sharing 12 money moves you should make in your 20s to set you up for a positive financial future.
#1: Create a budget and play an active role in managing your finances
Earlier this year I wrote a blog post titled “How to Create (and Stick to) a Budget”. In this post, I do a deep dive into the steps to create a budget, popular budgeting methods, and tips to help you stick to your budget. If you need help creating a budget, check out that post but regardless create a budget that works for you and stick to it. For me creating a budget was the catalyst to getting in the driver seat of my finances so, in my opinion, this is the most important step.
#2: Start an emergency fund and aim to save at least 3-6 months of expenses
If the pandemic has taught you nothing else, it’s highlighted how quickly things can change and how little control we truly have. At any time you could lose your job, get in an accident, or experience some other emergency. Starting an emergency fund will allow you not to worry when the unpredictability of life comes along. To start, aim to save 3-6 months of bare-bones living expenses in a high yield savings account. My favorite is the Capital One 360 savings accounts. Don’t forget to adjust your emergency fund as your living expenses increase!
#3: use credit responsibly to build your credit score
Credit is super important. You need it to buy a car, buy a house, rent an apartment, and much more. Building your credit is not a hard process but can be very difficult to do so responsibly. When I started to build credit, I used credit cards. My first credit card was the Discover It card that I got in mid-2019 and my second was the Chase Sapphire Preferred.
I have two rules that I abide by when it comes to credit cards. 1. Never buy anything that you don’t have the money for in your bank account, and 2. Pay off your credit card balance in full each month.
#4: Set up a 401k and invest to the employer match
If you work a traditional 9-5 job, your employer probably offers a 401K plan. A 401K is an employer-sponsored retirement account that allows you to invest pre-tax money into the stock market for your retirement. Most employers will match a portion of the money that you invest, which is why it’s so important to take advantage of this opportunity. Essentially your employer is giving you free money for your retirement. So if you have the means, invest at least the amount of money that your employer will match into your 401K account.
#5: create a Roth ira and max it out
A Roth IRA is an individual retirement account that allows you to invest after-tax money in the stock market. The benefit to Roth IRA’s is that once you remove that money in your retirement, you don’t have to pay taxes (since you paid taxes on your contributions). So, create an account with a reputable service (I recommend Vanguard) and start investing.
#6: Significantly pay down your consumer and student loan debt
Debt is never something you want to ignore. If you have student or consumer debt, it’s imperative that you create a plan to pay it off. Paying off debt consists of paying more than the minimum payment each month to reduce the principal amount of your debt. The two main ways to attack your debt are called the snowball method and the avalanche method.
The Snowball Method consists of paying the debt with the smallest balance first and then snowballing that money to pay the next smallest debt. This method is popular because the small wins help to inspire and energize you to keep going in your debt paydown journey. The Avalanche Method consists of paying your debts with the highest interest rate first and avalanching your money to the next highest debt. This method is cheaper than the snowball method (you pay less in interest) but your debt with the highest interest rate generally has a large balance. This means you could be paying down that debt for some time which can affect your motivation. Regardless of your method, your 20s are a great time to either significantly reduce or eliminate your debt.
#7: get appropriate insurance
Insurance is not the sexiest thing, but it’s still very important. Make sure you’re covered with car, renters, and health insurance. Depending on your needs there might be other types of insurance that you could benefit from but either way, look into your options and get the policies that benefit you the most.
#8: create at least 1 additional stream of income
At a certain point, reducing your expenses any further becomes impossible. That’s why creating other streams of income is super important. You can drive for Uber, deliver food for DoorDash, walk dogs, babysit, tutor, or start your own business. Whatever the method, creating more income allows you to reach your financial goals quicker.
#9: live below your means for as long as possible and avoid lifestyle creep
Living below your means is important no matter your age, but the younger you are the easier it is to live very frugally. Normally when you’re in college you live on very little money. Once you graduate try your hardest not to drastically increase your living expenses (even though you probably can afford to). Even as you move up in your career and pay grade, don’t simultaneously increase your living expenses. Doing so pretty much negates the raise you’ve just received. Since your living expenses generally take up the majority of your total expenses, keeping them as low as possible will help you build your wealth.
#10: save up for large purchases
Once you start using credit cards for your regular spending, it’s easy to use them for large purchases regardless of their importance. If you know there are big-ticket items that you plan to purchase in the future, start saving for them little by little each month. These are called sinking funds and I use 7-8 Capital One 360 savings accounts to house these specific savings goals (Holiday gifts, travel, health, car repairs, etc.).
I recently used this method when purchasing a new MacBook Pro. Since getting a new computer wasn’t something I needed right away, I started saving $200-500 for it each month. Around 5-6 months later, I was able to purchase my computer with cash and I didn’t have to go into debt or severely impact my finances.
#11: strive to save 40-60% of your income
This is an all-star goal, but if you have the means, strive to save and invest 40-60% of your income. Now I know this is a very difficult goal to accomplish but if you can, saving the majority of your salary can set you up to become financially independent or retire early.
#12: invest in your own brokerage accounts
I just started doing this and it’s been super fun. Since I’m contributing to both my 401K and Roth IRA, I’ve opened additional brokerage accounts and started investing on my own. This step will require you to educate yourself on investing but it will be worth it!
So there you have it, 12 Money Moves to Make in Your 20’s! Let me know what you think of this list in the comments down below. Also share if you have anything else you’d add to this list. Thanks for supporting the blog!
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