Do you know how to manage money in your 20s? Isn’t it weird that when you become an adult, no one really teaches you the basics of personal finance or good money habits?
Your 20s are when you start earning real income but also start having real financial responsibilities. You have to pay for your own car and health insurance, you’ll have to start chipping away at your student loans, and you might make a down payment on your first home. It’s important to start saving, investing, and budgeting as soon as you can. Good money habits will save you lots of headaches in the future. In this article, I’ll go over why it’s important to be smart about your money early and how to manage money in your 20s. Your future self will thank you for these tips!
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Six Tips On How to Manage Money In Your 20s
Make sure you’re getting your 401(k) match
Every company has different 401(k) plans and 76% of them offer some sort of match.1 Even if you might not be able to contribute the maximum of $19,500 per year to your 401(k), you should make sure you’re at least contributing enough to get your match as it’s free money.
After you contribute to your 401(k), make sure that you login to your provider and choose your investments. Lots of people assume that their 401(k) will grow by itself once you contribute to it but if you don’t take any action, your 401(k) will actually sit in cash. Your cash will actually depreciate in value due to inflation so make sure you’re investing it right away!
Start a Roth IRA
After you get your 401k match, the second most important investment you should have is a Roth IRA. A Roth IRA is a tax advantaged account, which means that all your earnings will be completely tax free. There’s a maximum of how much you can contribute per year depending on your income level. You’re able to contribute to your Roth IRA every year so make sure you’re contributing annually to make the most of tax free compound interest.
Having a Roth IRA will help you immensely on your savings toward retirement. There’s also a couple qualified distributions you might be eligible for, which may allow you to withdraw your earnings early with no penalty. You can read more about how a Roth IRA works and how to open one here.
Build up your credit history
Your credit score is important to build up to apply for any sort of loan, whether that’s a private student loan, an auto loan, or a mortgage. Your credit score shows lenders how reliable you are. Higher credit scores will qualify you for lower interest rates. You can build your credit history by paying bills on time, reducing your revolving utilization, and simply showing that you are a responsible spender.
Manage your credit score wisely by regularly checking your score. Your credit score will follow you through the entirety of your life. Learning how to manage it early will save you money and open doors for you in the long run.
Pay down debt
Start paying down your debt, starting with highest interest debts first. Credit card debt is notorious for having extremely high APRs so make sure you pay those down first. Having credit card debt will also negatively impact your credit score.
Paying down high APR debt as well as getting your 401(k) match are probably the two most important things you can do among this list of how to manage money in your 20s.
Once you get your first job, it’s exciting to see money coming in regularly and you may be tempted to spend all of it. Why bother saving, you can start that later right? Wrong. The earlier you start building your savings, the earlier you’ll be able to make big purchases such as your first home, a new car, and more. Every amount counts.
There’s no hard and fast rule for budgeting so you’ll have to learn what’s best for you. The 50-30-20 method is a good place to start. As you get used to your budget, you can gradually lower your spending and increase your savings and investments.
Learning how to be conscious and minimalistic with your spending is important too. Buy everything with intention.
Learn how to cook
Did you know the average 25-34 year old American spent $3534 on eating out in 2019?2 Eating out may seem like a small expense in the short term but everything adds up. Simply spending an average amount eating out would result in $17,670 over five years! Start saving by learning how to cook.
If you’re a beginner to cooking, invest in simple appliances such as an air fryer or an instant pot. After you get the hang of cooking small meals, you can look into meal planning which will save you even more money and time!
Now that you know all about how to manage money in your 20s, which ones will you implement today? What habits do you wish you learned in your 20s? Everyone goes at their own pace but it’s important to start as many of these as you can. Your future self will thank you for them.
Hello, I’m Chloe! I’m the primary author of Off Hour Hustle. Currently, I work as a software engineer, sell products through eBay, Etsy, and OfferUp, have 26+ credit cards, and am always working to diversify my income streams. In my spare time, I enjoy climbing, hiking, and other outdoor activities.