Set Yourself up for Success - 6 Smart Ways to Manage Your Money in Your 20s

Set Yourself up for Success – 6 Smart Ways to Manage Your Money in Your 20s

While it might not seem like it, your 20s are a great time to begin regularly putting money aside for your future. Even though you’ve just begun your career path and haven’t reached your full earning potential, you may have more disposable income in your 20s than during your 30s or 40s.

Less than 36% of individuals under the age of 35 have purchased a home. Many have not yet started a family. With fewer financial obligations, it’s easier to save, but it does take discipline and an overall plan to financial management.

6 Tips for Managing Your Money While in Your 20s.

1. Set a Budget

Sitting down and writing out a budget provides you with a realistic view of your current financial situation. Start by recording each of your monthly expenses, such as rent, utilities and gasoline for your car. Be sure to also include discretionary spending, such as how much you might use for a night out or if you take an annual vacation.

Putting pen to paper allows you to see where your money is going and to identify areas where you can make cuts or eliminate wasteful spending to fuel your savings and create a sound financial future. Budgeting also helps you to see where bad habits may be creeping in, such as spending too much on wants versus needs.

You can find more budgeting tips in our budgeting guide.

2. Calculate your Savings Goal

A financial advisor can work with you to help determine what you should be saving for retirement, but don’t forget about your rainy-day fund. You should regularly be funneling money into an emergency savings account.  Aim to have 3 to 6 months income set aside to cover a loss of employment or a major expense, such as a car repair.

If you’re falling shy of meeting your goals, this is where your budget can come in handy. Review your expenses and identify areas where you can make cuts to dedicate more of your income to savings and retirement.

Falling short on savings now can significantly impact your retirement savings plan, requiring you to take money from these essential funds later in life to pay for unplanned emergencies. To learn how to effectively save, you can review our savings tips.

3. Invest Wisely

Employer sponsored plans and other retirement saving tools, such as an IRA or Roth IRA, allow you to set money aside for retirement and  can help to ensure your contributions are there when you need them in your later years. However, these avenues are not your only investment options.

Many young people are investing in the stock market. When investing, working with a financial advisor can help ensure you have a balanced portfolio. This varies according to life stages, so it’s important to understand how to invest wisely.

Also, be cautious about investing on your own with online apps. Inexperienced investors may expose themselves to risks that could jeopardize their financial future.

4. Focus on Paying Off Debt

Whether you have student loans, credit card debt, or any other kind of debt, it’s wise to make a plan to pay them off.  

According to U.S. Census data, 1 in 8 Americans are carrying student loan debt, with an average individual balance of $37,500 in 2020. That equates to an average monthly payment ranging between $200 and $299 a month, and while the Standard Repayment Plan for federal loans indicates that borrowers should pay off their loan(s) in 10 years, it takes most borrowers more than twice that long to pay off their student loan(s), according to data from EducationData.org.

Add to that the average credit card balance of $5,315 and it’s easy to see that carrying large volumes of debt can seriously impact your ability to save for retirement. That’s why it’s important to look for ways to reduce your debt load.

Try to charge only what you know you can pay for each month on any credit cards to avoid paying interest and fees. To help you better manage your finances, we’ve put together these insights on reducing debt.

5. Think About the Future of Your Children but Don’t Jeopardize Your Own

If you have children, you’re likely concerned about funding a college account to pay for expenses down the line. While putting money aside for college and investing in savings plans such as a 529 account can be a sound strategy for paying education expenses, it shouldn’t come at the cost of your own retirement savings.

While in your 20s, it’s a prime time to fund retirement accounts, particularly if you can take advantage of an employer sponsored plan. Many employers offer matching, meaning they contribute a certain amount to your retirement savings plan based on the amount of your own contributions. This is free money for you, and when added to your contributions, can grow significantly over time.

To learn more about planning for your future and that of your children, read our tips on balancing retirement and education savings.

6. Take Advantage of Your 20s to Help Ensure a Happy Retirement

Your 20s are the perfect time to build a foundation of success when it comes to saving for retirement. How you manage your finances now will set a pattern for the rest of your life. By focusing on saving and avoiding debt, you can embark on a path toward a happy retirement even as you begin your career.

For more financial management tips while in your 20s, visit FNBO’s financial journey page or connect with a financial advisor.