Smart Money Habits to Start in Your 20s
Your 20s are a time of change, excitement, and figuring things out. It’s also the perfect time to develop smart money habits that will set you up for financial success in the future. Whether you’re just starting to manage your own finances or looking to improve your money skills, these smart habits will help you build a strong foundation for financial independence.
1. Create a Budget and Stick to It
One of the best habits you can develop in your 20s is budgeting. Creating a budget helps you keep track of your income and expenses, ensuring you’re not overspending. It’s a simple way to control where your money goes and make sure you’re saving for the future.
Tip: Use apps like Mint or YNAB (You Need A Budget) to track your spending easily.
2. Start Saving Early
Even if you can only put aside a small amount, starting to save early is a powerful habit. It’s all about consistency. Having a savings habit, no matter how small, will grow over time and help you build a financial cushion for emergencies or big future goals like buying a car, traveling, or getting a home.
Tip: Aim to save at least 20% of your monthly income. Consider setting up an automatic transfer to your savings account every payday.
3. Build an Emergency Fund
Life can be unpredictable. That’s why it’s important to have an emergency fund—money saved up for unexpected events like car repairs, medical bills, or a job loss. Start with a goal of $500 to $1,000 and gradually work up to 3-6 months’ worth of living expenses.
Tip: Keep your emergency fund in a separate savings account to avoid spending it on non-emergencies.
4. Learn About Credit and Build Good Credit
Your credit score plays a big role in your financial future, from buying a car to renting an apartment. Start building good credit early by paying your bills on time, keeping credit card balances low, and only applying for credit when necessary.
Tip: If you don’t have a credit card yet, consider applying for one with a low limit to build your credit history responsibly.
5. Avoid High-Interest Debt
Debt can be a major roadblock to financial freedom. High-interest debt, like credit card debt, can quickly pile up and make it harder to save or invest. If you have any, prioritize paying it off as soon as possible. Avoid accumulating more high-interest debt, and try to pay off your balances every month.
Tip: Consider using the “debt snowball” method—paying off your smallest debt first, then moving on to the next one.
6. Start Investing Early
Investing is one of the best ways to build wealth over time. Start small if you need to, but the earlier you start, the better. You don’t need a lot of money to begin investing—many apps and platforms allow you to invest with just a few dollars. The power of compound interest means your investments will grow more the earlier you start.
Tip: Consider opening a Roth IRA or 401(k) if your employer offers one. Both are great retirement accounts with tax advantages.
7. Track Your Spending
It’s easy to spend without thinking about it, especially when you’re out with friends or making impulse purchases. Tracking your spending helps you see where your money is going and identify areas where you can cut back. This is another habit that will help you stick to your budget and reach your financial goals faster.
Tip: Use budgeting apps or even a simple spreadsheet to track your daily, weekly, and monthly expenses.
8. Set Financial Goals
It’s important to have clear financial goals, whether it’s saving for a vacation, buying a car, or paying off debt. Setting specific goals will give you something to work toward and keep you motivated. Break your big goals into smaller steps to make them more achievable.
Tip: Make your goals S.M.A.R.T.—Specific, Measurable, Achievable, Relevant, and Time-bound.
9. Live Below Your Means
Living below your means doesn’t mean you have to sacrifice your happiness. It’s about making conscious choices to save and invest rather than spending excessively on things you don’t need. By cutting back on unnecessary expenses, you can direct more money toward your financial goals.
Tip: Before making a purchase, ask yourself, “Do I really need this, or is it just something I want?”
10. Educate Yourself About Money
The more you learn about money, the better decisions you’ll make. Take the time to educate yourself about personal finance—whether through books, blogs, podcasts, or online courses. The more you know, the better equipped you’ll be to make smart financial decisions.
Tip: Follow personal finance blogs, listen to podcasts like The Dave Ramsey Show, or read books such as Rich Dad Poor Dad by Robert Kiyosaki.