To provide you with the best financial habits to adopt in your 20s, we asked ten professionals, including financial consultants and CFOs, to share their insights. From the importance of establishing an emergency fund to the need for consistent and intentional saving, discover the top ten financial habits that these experts believe everyone should adopt in their 20s.
- Establish an Emergency Fund
- Tackle Debts with Ferocity
- Embrace a Budgeting Habit
- Start Early Retirement Savings
- Treat Credit Cards as Cash
- Focus on Clearing Debts
- Pursue Continuous Financial Education
- Balance Enriching Spending with Saving
- Build a Diverse Investment Portfolio
- Adopt Consistent and Intentional Saving
Establish an Emergency Fund
Build an emergency savings fund—high-yield savings accounts and auto-draft. According to studies following the impact of COVID-19, three out of five Americans (61%) say that they have already run out of their emergency savings fund or will run out of funds by the end of the year.
As you launch your career, do not minimize the importance of establishing a savings fund that is only utilized in an emergency. Take advantage of high-yield savings accounts that offer a higher interest rate while your money sits and accumulates.
Ask your current bank what they offer, but explore other banks. Online banks typically offer a higher interest rate, making their high-yield savings accounts the most attractive. Once established, set up an auto-draft from the account your paycheck hits to your emergency savings fund.
Tackle Debts with Ferocity
Debt is one of the biggest obstacles you will experience for maintaining good financial health. It will grow if you do not manage it well, like paying off credit card bills late (after the due date) each month or only making minimum payments. Later, you will face a severe problem in maintaining your household costs, savings, and retirement funds. So, tackling debts in your 20s with more ferocity is best.
If you have debts to pay off, take up a side gig to earn money during college. Try to live a frugal lifestyle to cut unnecessary expenses and save more. If you buy things with a credit card, pay off the bill entirely instead of only making the minimum payments. You’ll save a lot from the interest or late fees.
Keep using credit limits under 30%; it’ll help you build a good credit score. With a decent score, it’ll be easier to apply for low-interest loans if you need any. Remember, paying off debt today is considered savings for the future!
Embrace a Budgeting Habit
One important financial habit that everyone should adopt in their 20s is budgeting. It’s important to create and regularly review a budget, as it allows you to see where your money is going, track your spending, plan for future goals, and have more control over your finances.
An often-overlooked but useful example would be to set up a separate bank account specifically for taxes. By making pre-tax contributions into this account throughout the year, it can help ensure that you’ll have enough saved when tax season rolls around. This could prevent getting into debt or any other financial trouble associated with not having enough cash available when taxes are due.
Start Early Retirement Savings
One of the most important financial habits everyone should adopt in their twenties is to begin saving money for retirement right away. Starting to save at a young age has tremendous benefits, not least of which is having enough saved up when you decide to retire.
Additionally, those who start saving early will benefit from compounding interest over the years, which can lead to a larger nest egg down the road. It’s never too early to start planning for your future financial security. Even if you can only commit to setting aside a small amount of money every month, it will make all the difference in the long run.
Treat Credit Cards as Cash
Treat credit cards the same as cash. Swipe them only when you have the cash for what you’re buying, and then pay it off immediately. This provides greater fraud protection than debit cards, builds your credit, earns rewards, and keeps you cognizant of your spending.
Focus on Clearing Debts
In your 20s, you may have certain education-related or personal debts to clear, and it’s imperative that you focus on this. You need to create a strategy to eventually reduce debts, like student loans or credit card balances, so you can start saving and investing in your future. The key to this lies in budgeting.
By understanding your finances through budgeting, you can allocate extra funds toward debt repayment and set a clear course to become debt-free faster. This way, you’re effectively taking control and not letting debt control you. With a well-planned debt management approach in your 20s, you’ll navigate the waters of financial freedom, saving money on interest, and gaining peace of mind along the way.
Pursue Continuous Financial Education
Financial education is a constant process. The more you understand about money management, investing, and making sound financial decisions, the better equipped you will be to secure your future and make wise decisions throughout your life.
Reading books, taking online courses, and following reputable financial websites to remain informed about personal finance is recommended. Attend seminars or courses, and consider getting financial counsel as necessary. You’ll be more prepared to respond to shifting financial situations and embrace possibilities for progress as you gain knowledge.
Balance Enriching Spending with Saving
One financial habit everyone should adopt in their 20s is to spend money on things that enrich you, as this time period is a great one to invest in yourself and in your future. This might be things like traveling, acquiring new skills, or following your passions.
Overall, it’s important to spend money on things that bring you happiness, satisfaction, and new opportunities. However, it is key to balance your spending with saving and not go overboard. For me, I like spending money with my friends and family, or going on vacation. In my view, the goal of getting money is to spend it on things that will bring you happiness.
Build a Diverse Investment Portfolio
In your 20s, simply saving isn’t enough. It’s the prime time to build a diverse investment portfolio that can generate passive income.
Dive into financial instruments with which you’re comfortable, ensuring they align with your risk tolerance. This isn’t about getting rich quick; it’s about setting a foundation for future financial health. Remember, it’s not about being greedy, but about being wise with your money.
Adopt Consistent and Intentional Saving
A financial habit to adopt in your 20s is consistent and intentional saving. You’re at a stage in your life where the self-discipline and good money habits you develop will stick and lay the foundation for future financial security.
So, small ways like shopping sensibly with coupon codes or discounts, cooking at home, and getting rid of expensive habits like smoking can help you cut spending and save a portion of your income. This gives you some disposable income to build an emergency fund or invest for long-term goals.
When you maintain this disciplined approach, you’re more prepared for unexpected expenses and can take advantage of compounding interest for wealth accumulation. Start small, but start early, and watch your financial stability grow over time.