Your 20s are the beginning of most people’s adulthood. College, career training, building your life! As I look back on my life from my late 30s, here are 10 Things to Master in Your 20s:
1. Stay Out of College Debt
When it’s time to graduate high school and head off to college, so many people make the mistake of wanting to attend the best schools, no matter what. It’s how you become successful right?
Sorry, usually no.
That guy in the office who went to a high-end private school for $30,000 a year is usually working the same job as the lady who went to her local state school for $10,000 a year. He just has 3 times more tuition debt to pay.
Don’t saddle yourself with lifelong debt payments in order to get a degree.
- Know what you want to major in before you even apply to college, so you don’t waste time and money changing majors or dropping out
- Price out schools that will give you the best degree for the least amount of money
- Figure out the average starting annual salary of the field you plan to enter and do not take more student loans than that or else you will be paying it off for far too long (If your starting salary will probably be $40,000, don’t take out more than $40,000 in student loans)
- Try to save, work part-time, get scholarships, and any other way you can to prevent having to take out excessive student loans
- Check out my past articles on How to Pay for College Debt-Free Part 1 and Part 2
2. Get Work Experience
You are all set to go get your first “Big Kid” job but the hiring manager says “sorry, you don’t have enough experience.”
So many times, young adults are ready to take on the world and go out thinking that with a newly minted college degree in hand, they should be able to get whatever job they want! That fancy degree is nice and all, but most companies want experience.
Your 20s are the time the world is your oyster. Take this time, especially while you’re in college, and get that work experience while the stakes are low. (No mortgage or kids to provide for)
- Take part in ALL the internships in college
- Get first hand expereience in large businesses that already assume you don’t know anything. And they are usually willing to write awesome recommendation letters, if you work hard.
- Get a part-time job that involves customer service.
- You will better understand A LOT of what goes on behind the scenes at many companies and really begin to respect how much you value your time vs money.
- Be willing to start at the bottom and work your way up.
- If there’s a company or industry you really want to be a part of, you may have to start at the bottom and work your way up. Get your foot in the door and prove your talents.
Here are 10 Ways to Increase Your Income. Start building your expertise and network in your 20s so that you can more easily advance in your 30s.
3. Stay Out of Consumer Debt
In your 20s, you finally have your own job, your own money, and the freedom to do whatever you want. (No more curfew from mom and dad!) You want to go out and prove to the world that you can be successful!
But what many people consider success can be a huge burden on your finances.
- Fancy New Cars
- Big apartment in the city
- Designer Suits
- Dinner out on the town
These are fun and wonderful things to have IF you can ACTUALLY afford them.
Too often, young adults try to look successful and begin taking out loans and credit cards to afford them. They figure that their salary will only go up. Paying off these loans in the future should be no problem!
But don’t screw over your future self for the fun and excitement of today! That future self is still you!
While all those fancy new things are nice to have, use your 20s to:
- Build up your Emergency Fund
- Start Saving for Financial Independence
- Live in a Small House or Get Roommates
- Bike, Use Public Transportation, or Buy a Car You Can Actually Afford
- Save on Household Bills by using lower-cost options like Tello for Cell Service and Hulu instead of cable
Use your 20s as a time to build a stable financial life for your future self, not bog them down in debt. You will thank yourself later.
4. Build Your Credit Score
Along with #3 and Staying out of Consumer Debt, use your 20s to Build Up your Credit Score.
Building your credit is as easy as having a simple credit card that you use every once in a while and pay off every month.
As you go along in life, your credit score will become an important aspect of your financial situation.
Credit Scores are looked at by:
- Mortgage Lenders when you want to buy a house
- Landlords when you want to Rent a house
- Bankers when you want a car, business, or other type of loan
- Even some employers will look to make sure you are a responsible person they want in their company
The higher your credit score is the lower your interest rates are, possibly saving you hundreds or thousands of dollars a month in interest on a home, car, or other such purchase.
And, if you are responsible and make sure to pay off your credit cards every month, you can get travel rewards and cashback cards! These can be great benefits to allow you to travel or treat yo’self guilt-free!
5. Live Below Your Means
One of the most basic financial principles is to Live Below Your Means. Spend less than you earn and invest the rest!
When you get your first job, even in high school or earlier, train yourself to save a portion of every paycheck. Ideally, it’s best to save 20%, or more, of each paycheck.
Your 20s are a time when you can “live poor” and no one will bat an eye.
- Live in a tiny apartment with multiple roommates? Who cares? You’re a young single person. You don’t need a huge home to clean and maintain, you’re out working and building a network of friends and collegues.
- Drive an old, tiny car? Of course you do, it’s only you, no need for a fancy SUV and excessive gas prices.
- Sign up for ALL the overtime and work on weekends? Why not? This is your time to build up your experence and bank account when you don’t have a spouse or kids waiting at home.
Take advantage of your youth, energy, drive, and freedom from future family responsibilities.
Just make sure that you are paying yourself first (ie. savings) before you decide where else to spend your money.
Priority of your paycheck should be:
- Savings/investments
- Bills (rent, utilities, gas, groceries, etc)
- Then you can party, eat out, and live it up with whatever is left (If it’s not much, here are some of the Free Activities we participate in without breaking the bank)
6. Track Your Spending
In the whirlwind that is your 20s, there’s a lot going on! If you’re not careful, your spending habits can get out of hand fast if you’re not tracking where your money goes.
I have so many friends who complain that they live paycheck to paycheck, never able to save or invest. They complain about their situation but eat out, get coffee, order UberEATS, and have their nails done all the time.
Now, I am not downing enjoying a night out or keeping up your appearance at all. If it truly brings you joy, you should be able to indulge. What is life if you can’t enjoy it?
But you need to budget and plan for that indulgence.
Each month, you should create a general budget, telling your money where it will go.
- A certain amount to savings and investing
- However much for rent and household bills
- Groceries, gas, and other essencials
- Then, build a fund specifically for those extras that bring you joy. When those funds are gone for the month, you’re done spending on that until next month.
Once you’ve created a budget, track your spending. Use an excel sheet on your phone, cool budget apps like YNAB (free for college students), or even a pen and notebook.
At the end of every day or week (depending on how disciplined you are on your spending) review where you stand and make adjustments to make it through the month.
By getting into the habit of tracking your spending and bills to make adjustments in your 20s, you will be better prepared to handle the larger and more complex bills of your 30s, 40s, and beyond.
7. Open Retirement Accounts
When you’re in your 20s and just starting your career, retirement is literally a lifetime away. It is a far-off dream for some imaginary old version of you.
But opening retirement accounts in your 20s is the BEST way to build a successful financial life for your older self.
For every $1 you invest in your 20s (assuming a 10% return) you will have $45 in your 60s.
If you were to wait until your 30s to start investing, that $1 only has time to become $17 in your 60s! That’s a huge difference!
(Check out this investment calculator)
So start those retirement accounts as soon as you start earning money.
Employer Sponsored Plan
If your employer offers a 401k, TSP, or other forms of retirement account with a match, take them up on it. Put in at least as much as they are willing to match every check.
If you put in 3% of your check and they match 3%, that is an immediate 100% return on your money! And twice as much money to build over your career.
Individual Retirement Account (IRA)
In addition to or as a substitute for, your employer-sponsored retirement fund, make sure to open a Roth IRA. This is a separate retirement account that is solely owned by you. It has nothing to do with your employer so if you change jobs, you don’t have to do anything to bring it with you. And you will have many more options to invest in as employer-sponsored plans tend to be more limited depending on the company managing them.
Just Do It
Challenge yourself to Max Out your retirement accounts (at least your IRA) every year. (IRAs allow only $6,000 a year in deposits in 2022 and 401ks $20,500) This is a lofty goal for many 20-somethings just starting their career. But doing so will set you up for a very happy and financially secure retirement.
And please make sure that you actually invest the funds within your retirement accounts. If you don’t actually choose investments, your retirement account just acts as a fancy bank account, earning less than 1% interest.
I’ve had many a 30something friends kick themselves after realizing that all the money they’d been putting away for the last 10+ years was never invested and just sitting in the equivalent of a fancy bank account.
8. Invest in Index Funds
Opening a retirement account is the first huge step towards a financially successful life, investing in index funds is the second step.
Many people are so intimidated with choosing the “right” stocks that they never even begin investing. Figuring out what the next big company or industry will be even 50% of the time is nearly impossible!
But over the last 50 years, the entire stock market has reliably grown, on average, about 10% annually. Yes, some years dip and some years have crazy growths, but on average, it has consistently grown.
In walks Index Funds. Index Funds track entire industries. Buying a little bit of every stock available and splitting them among all of the index fund owners.
When you buy an index fund, you are essentially buying a small portion of EVERY stock, bond, or other industry the index follows. You own them ALL!!! Muahaha!!!
So if you want to have consistent growth without all the work of tracking and investigating companies and their stocks, invest in index funds. They show more consistent returns than individual stocks and actively managed mutual funds year after year. And they cost a lot less too.
9. Time in the Market is More Important Than Timing the Market.
The sooner you get your money invested, the longer it has to grow. Remember my example in tip 7?
$1 invested in your 20s is worth over twice as much as $1 invested in your 30s.
Study after study has shown that consistently investing with dollar-cost averaging (putting money in every month or every paycheck no matter what the stock price) creates higher returns over time than saving up and purchasing only when stock prices are at their lowest.
So start early and invest consistently to build the strongest financial future.
10. Make Sure You’re on the Same Page as Your Future Spouse
Most people meet and marry their spouses in their 20s.
This is the person you love. The one you want to build a life and grow old with.
But marriage is more than just a merging of last names and bedroom partners. It is also a conjoining of finances, life goals, and so much more.
Before you make this ultimate commitment to spend the rest of your life with someone, make sure you discuss EVERYTHING.
- Finances: budgeting, spending habits, debt, retirement goals
- Career and life goals: if one of you wants to become a high level banker and the other dreams of becoming a mountain hobit, some things may need to be discussed
- Where you want to live: city, country, type of house, distance to family
- Children: if and how many, discipline, schooling, chores, daycare, if one parent will stay home
- And much, much more
Too many people jump into marriage without having these important discussions with their partners and then end up divorced or extremely unhappy just a few years later. Don’t let this happen to you.
Be comfortable opening up to each other about everything. A few hard discussions before planning the wedding can save so many heartaches in the future both financially and emotionally.
And if you don’t meld after these hard discussions, have the grace to walk away from the relationship. For both of you.
It may be hard to let go of a long-term relationship but it is so much easier than divorce once your lives have been legally bound.
So have those long talks and discuss EVERYTHING. You will thank yourself later as you grow a successful marriage and family with the right person.
Wrap Up
Your 20s is a time to build the foundation for the rest of your life. It’s often when you find yourself and begin to discover the You you want to be.
The tips I share today are not just for 20somethings. They are for anyone, at any age. Whether you’re just graduating high school or resetting your financial journey in your 50s. I hope my advice brings you years of success!
What are some of the most important things you learned in your 20s? Or wish you had known?
Leave a comment below and join the conversation!