5 Money Habits Your 20s Demand: You'll Regret It If You Skip Them
You don't need to be pulling good money to be pushing good money habits. In fact, creating these patterns of behavior while you're young and on a shoestring salary will ensure they're in place once you have enough wealth to actually affect your life's path.
Building good money habits in your 20s comes with lifelong benefits, like the ability to retire when you want or financially support a family. But when you’re dealing with student loans and your first apartment — not to mention a whole host of other financial obligations — it’s easy to feel overwhelmed. This can lead to some questionable money decisions that haunt you well into adulthood.
But it doesn’t have to be that way. If you want to set your future self up for success, don’t skip these five money habits.
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1. Start Saving Early
Many people wait until they’re earning more money to save, but starting early is best. Otherwise, you could be missing out on significant growth potential.
“The reason your 20s matter so much comes down to compound interest,” said Russell Moran, licensed insurance and financial professional at Russell Moran Enterprises. “You have more time in your 20s than you do in your 40s — and with compounding, time is everything. Same monthly savings, completely different outcomes depending on when you start.”
Say you start saving at age 25. You contribute $100 a month every month into an account with 4.00% APY. After 10 years, you’ll have around $14,718. That’s $2,718 earned in interest.
But what if you wait for five years? You’d only have around $6,640. It’s the same account and same monthly contribution, but less time for your money to grow.
2. Create and Live by a Budget
According to a Harvard Youth Poll, 42% of people under 30 struggle financially. Having a budget can help prevent this issue. It can give you clarity on your income and expenses. And it could make it easier to pay off debt or save.
When you make your budget, cut unnecessary expenses — like that subscription to a third streaming platform. If you’re really struggling financially, be ruthless with what you cut out. You can always add things back in once you’ve gotten your money under control.
Don’t just create your budget and forget about it, though. Get in the habit of looking it over regularly. Cody Schuiteboer, founder of Best Interest Financial, suggested doing this quarterly.
“Four check-ins per year to compare [your] assets against liabilities builds the awareness needed to avoid growing [your] expenses along with [your] salary,” he said.
3. Avoid Credit Cards
According to Experian, the average Gen Zer has $3,493 in credit card debt. If you don’t have credit cards, avoid them. If you do, prioritize paying them off quickly.
“Credit card debt is so bad for your financial well-being,” said Melanie Musson, a finance expert with Quote.com. “It keeps you stuck paying for things you have long-since forgotten. Pay it off and keep yourself from getting into it again.”
4. Save for Retirement With Your First Paycheck
Retirement might feel far away when you’re in your 20s, but don’t wait to start saving up. The sooner you begin, the easier it is to build the habit long term. Plus, you can build a more substantial retirement fund if you start early.
“It’s so crucial to start when you’re young because the longer money sits invested, the more compounding interest can transform something small into something consequential,” Musson said. “Instead of having to panic and try to catch up in your 40s, you’ll have a healthy retirement account because you established a habit in your 20s and stuck with it.”
Curious how you’re doing compared to others your age? As per Empower, people in their 20s have a median retirement balance of $42,502. The average retirement balance across all age groups is $532,291.
5. Prioritize Paying Off Your Debts (Especially Student Loans)
Debt, even if it was initially for a good cause, can haunt you well into your adulthood. Paying it off early — and finding smart ways to avoid new debts — is key.
Take student loans for example. According to Education Data Initiative, the national average student loan balance hovers between $39,000 and $42,000. In many cases, it takes borrowers up to 20 years to pay off that debt.
“You’ll probably start making more money when you’re older, but if you can get your student loans paid off before your 30s, you’ll have more freedom to buy a house and reach other financial goals,” Musson said. “Additionally, paying off your student loans early means you’ll save so much compared to the interest you would have paid.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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