Your 20s can be a hugely transformational time. It’s when you may move out on your own, kick off your career, and really start getting to know yourself.
Part of coming into your own means creating good habits that you can maintain. And it’s easier to learn those habits early in life, rather than have to correct poor habits later, says Bright Dickson, co-host of Money and Mindset With Bright and Brian.
“In your 20s—as you start to learn what it is that you really value—it’s the time to establish money habits that are in line with your values. And those values can change as you grow and develop,” Dickson says.
Making sound financial decisions now while in your 20s can help create better opportunities for you down the road.
“It can be really easy to think, particularly in your 20s, that you’re already behind. But it’s really about you’re starting where you’re starting,” says Bright Dickson, co-host of Money and Mindset With Bright and Brian.
The highlights:
- Saving for emergencies, budgeting based on your needs and values, and building a great credit score are a few of the foundations for a successful financial future.
- Protecting yourself by purchasing insurance and safeguarding your online data can give you the mental and physical security to plan for your future.
- Visualizing your ideal future can help you make the personal and financial investments you’ll need today for the tomorrow you want.
1. Build your confidence with an emergency account.
An emergency fund is the cornerstone of your financial life. We don’t call it a “financial confidence account” for nothing: Being prepared for a rainy day can help give you a sense of inner peace. And when you have your safety net established, you can make better decisions when facing a financial challenge.
To establish your emergency fund, set up an account that’s separate from your main spending account, easy to access, and reserved for emergencies only. A high-yield savings or Truist One Money Market Account is a great place to store your emergency savings. Then, save first and automatically by setting up automated monthly transfers through your online banking.
If you don’t have any emergency savings yet, work to save $1,000 first. Then, set a goal to save three to six months of living expenses to ensure you’re covered for an event like a loss of income. As you steadily grow your emergency savings, take pride in the peace of mind it can bring you.
2. Align your spending with what you care about.
The best way to ensure you’re making the most of your money is to align your spending according to your values. You can start by simply tracking your spending to see where your money is currently going. Then, you can draft a budget based on how you want to shape your spending from there.
Create line items in your budget for your must-haves, like rent, groceries, utilities, and debt payments. Once you know the essentials are covered, write down what you value or care about most. You can budget the rest of your income according to those values. For some, that may mean prioritizing spending on travel and experiences. For others, it may mean putting as much income as they can toward extra debt payments to become completely debt-free. You may fall somewhere in between, but writing those values down, ranking them, and budgeting accordingly can help you hit your goals and feel confident about what you’re spending on and saving for.
3. Prioritize paying down debt.
Whether it’s from student loans, credit cards, an auto loan, or all of the above, debt is something many of us have in our 20s. If you have credit card debt, you may want to work on paying that off first. Credit card debt typically comes with high interest rates, which means paying a lot more for something over time than you would if you were able to pay for it with cash.
“To get out of debt quicker, you’ve got to pay more than the minimum, and clearing out high-interest balances under $1,000 is a great place to start,” says Brian Ford, head of financial wellness at Truist. “Putting that at the top of the list and using every available dollar to crush it frees up cash flow. With extra money available, focus everything you’ve got on the next highest-interest debt. Rinse and repeat that approach, and before you know it, you could be out of debt a lot quicker than you thought possible.”
4. Build a solid credit score.
As you continue to tackle your debt burden, keep an eye on your credit score, too. Managing debt will help build your credit score over time—and a score above 720 can make borrowing easier and less expensive when you’re ready for bigger money goals like buying a home.
If you’ve never taken on any debt before, you probably don’t have much of a credit history. To build a credit history, you need to use credit—and applying for a credit card is one way to do this. As long as you pay off your balance in full each month, you won’t pay interest, and you’ll prove to lenders that you’re a reliable borrower.
While building your credit history is important, don’t feel like you need to fill out every new credit application that comes your way. The reason? A portion of your credit score is based on the average age of your accounts. New credit applications also typically count as “hard inquiries,” which can each temporarily drop your credit score by a few points. If lenders see multiple credit applications in a short time frame, they may view it as an indicator of financial instability.
5. Set your future self up for financial success by investing.
You may have heard of several different retirement terms like IRA, Roth IRA, 401(k). It can seem like a lot to figure out at first, but here’s some good news: The type of retirement fund and how much to invest in your 20s is less important than starting a fund and contributing to it regularly.
When you start saving in your 20s, the amount you save and the interest you earn have more opportunity to compound—creating a better chance at building wealth and securing a comfortable retirement.
“What your future self really wants—and needs—is more money,” says Ford. “The best way to ensure that is a shift in perspective. You’re not just saving for the future—when you start or increase contributions to a 401(k), you’re setting up a good foundation for your future self. That mindset shift can help you feel better about setting aside money to invest when you’re young.”
A streamlined way to set yourself up for the future? Set up automatic transfers from every paycheck to a 401(k) or IRA. Many employers will also offer matching contributions to your 401(k). Over time, you can watch your investments grow into a nice nest egg while confidently working toward other money goals.
Pro tip: Starting your retirement savings in your 20s can make a huge difference in the long run—check out the chart.
6. Safeguard your online brand and data.
If you’re like most 20-somethings, you probably have an online presence. With all the social media platforms and websites out there, it’s easy to reveal more about ourselves than we may mean to. Taking steps to protect yourself—like monitoring your financial accounts and credit report for any suspicious activity, using multiple passwords, and setting up two-factor authentication—can help safeguard your personal information.
Since you’re early in your career, you should also consider how potential employers may view your online presence. Take a look at your social media accounts and old posts to make sure there’s nothing that could be held against you by your current or a potential employer. Consider how you want to be seen by others online, and use that mindset to help shape and protect your personal brand.
7. Make sure you’re covered for different scenarios.
Although it may not seem like the most exciting financial topic in your 20s, good insurance policies can help stop bad situations from getting worse. And you’ll likely need to navigate leaving your parents’ coverage and signing up for your first policies.
In terms of both protection and education, a top goal for your 20s should be to cover yourself with the fundamental types of insurance, like auto, health, and home or renters’ insurance. Starting with these basics can help you learn the intricacies of insurance as you decide which types of policies and how much coverage you really need to have peace of mind.
8. Consider planning for homeownership, but don’t feel pressured to rush in.
Certain decisions—like whether to rent versus buy a home—should depend on how you want to live your life. If you plan to stay in the same area for at least five years and have the funds for a down payment, homeownership can be a powerful way to start building wealth. But renting may be a better option for you if you value flexibility, aren’t financially prepared for homeownership, or simply don’t want the added responsibility.
Being a homeowner means you have to be ready to cover the mortgage, utilities, insurance, property taxes, homeowners association (HOA) fees, repairs, and maintenance. Plus, buying a home typically requires a significant down payment in addition to other upfront costs.
That may all seem like a lot now, but if you start saving for it in your 20s, homeownership can be a reality for your future. At the same time, your 20s are for figuring out what you want in life, and that includes how and where you want to spend your time. You can still build wealth while renting if it suits your lifestyle better.
9. Don’t just invest your money—invest in yourself.
Remember: You are your greatest asset. In your 20s, Ford recommends investing in networking, knowledge, education, and skills to set you up for long-term success.
“Put money into investing in yourself,” says Ford. “It’ll pay greater dividends early in your career to get you on the right trajectory.”
“Part of your job now is to learn as much as you can and put it all into practice,” says Dickson. “Doing that builds self-efficacy, which is our belief about how capable we are of meeting challenges in the future. And the more challenges you meet in the present—financial or otherwise—the more you’re going to feel prepared to meet those in the future.”
Next step suggestions:
- If you don’t already have a good place to store your emergency fund, consider opening a savings account so that you have a safe and separate spot for it.
- Even if you’ve already established a credit history, implement a step-by-step approach to building and maintaining your credit score—helping ensure you’re in a good position when a big opportunity like home ownership presents itself.
- Start saving for retirement in a 401(k) or an IRA, or consider increasing your contributions if you’ve already started—even if it’s just by 1%.