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The 20’s can be a really busy, really exciting time, whether you’re finishing school, building a career, getting married, or starting a family (or some combination thereof). Add to that things like traveling, hanging out with friends, and discovering your passions in life, and it can be hard to prioritize financial planning.

But it’s important not to miss out on this important decade when major financial progress can be made. Establishing good money habits doesn’t have to be hard. Plus, skills like managing debt well and saving methodically for the future can set you up for a lifetime of financial wellness. Here’s how to start on that path.

10 Financial Tips for Your 20s

Here are some of the most important components of good money management and building wealth. The following advice can help you enjoy financial stability in your 20s and beyond.

1. Open Your Own Bank Account

If you’re a 20-something who doesn’t already have a bank account, you’ll want to open one. It can be the hub of your daily financial life. With a checking account, you can direct-deposit your paychecks, easily pay bills electronically, and have a debit card for daily spending.

You’ll also probably benefit from a savings account, so you have a safe place to store your money while earning interest. Having FDIC-insured bank accounts means your money is secure, and it’s easier to stay organized and work toward financial goals.

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 3.80% APY, with no minimum balance required.

2. Budget Wisely

If you’re like many young adults, you may earn a limited income while building your career. Creating and sticking to a budget can be a very helpful move. Alongside budgeting for your basic living expenses, you can also accommodate the “wants” in life (fun spending, such as dining out, travel, and concert tickets) and savings goals into your budget. Financial planning in your 20s can be hard to accomplish without a strong budget in place.

There are various ways to learn how to budget as a beginner, like the envelope system or the 50/30/20 rule. It may take a bit of experimentation to find a method that suits you. Another option: There are many apps that will help with this task, including those offered by your bank. Checking your account balances is another good step, as it helps you stay in touch with your money and course-correct if you are out of sync with your budget.

3. Don’t Overspend While Having Fun

Of course, you want to enjoy your 20s. Hanging out with friends, going to concerts, and decorating your first home are all worthy pursuits. However, being a financially responsible adult involves slowly chipping away at savings goals like retirement (more on that in a minute) or a down payment for a home. It can be helpful to set aside 10% to 15% of your earnings each month for your savings goals to make sure they aren’t ignored.

Also be smart about your spending. According to the 50/30/20 budget rule mentioned above, 30% of your take-home pay should go toward “wants” vs. 50% for “musts” and 20% toward savings and additional debt repayment.

There is plenty of advice available about cutting costs on groceries, streaming platforms, subscriptions, and travel. It’s wise to balance “in the moment” fun with working your way toward long-term aspirations, like your own home.

4. Avoid Credit Card Debt

Credit card debt comes with pricey interest charges and fees which can make it hard to pay it down. As of this writing, the average credit card interest rate on new offers was almost 25%. Think about it: Purchases cost a lot more than they seem to in the moment when you consider that interest getting tacked onto the purchase price. Plus, those high rates can mean that paying only the minimum amount due on your balance will take quite a while to pay off.

Whenever possible, it’s best to avoid taking on credit card debt. Otherwise, the interest charges will just mount. If you do have credit card debt, explore offers for balance transfer cards that give you no or super low interest rates for a period of time so you can hopefully get out of debt. Or consider a lower interest personal loan or talking to a debt counselor at a nonprofit like NFCC (National Foundation for Credit Counseling).

5. Be Smart About Student Loans

If you’re out of school and are paying back student loans, that can certainly take a bite out of your disposable income. Whether you have a federal or private student loan, you can benefit by regularly making extra payments, whenever possible, so you can pay down your debt faster and spend less on interest. If the amount you owe seems overwhelming, you might look into options for switching repayment plans or consolidating your loans.

6. Earn Interest on Your Money

As noted briefly earlier, it’s possible to earn interest on savings by keeping it in a savings account. To earn even more, 20-somethings can turn to high-yield savings accounts that tend to earn more interest than traditional savings accounts do, which is of course a good thing. These accounts also keep your cash liquid, meaning your funds are very accessible. You’ll often find the best rates at online-only banks.

If you have additional funds available and are comfortable with taking on more risk, you can look into investing in your 20s. You might seek professional guidance on managing your money, though there’s likely a cost for working with a financial advisor.

7. Prioritize Goals

If you can buckle down and focus on the money goals that matter now, your long-term financial fitness can benefit greatly. You can develop a financial strategy for achieving the following, as they apply:

•   Buying a home

•   Child rearing expenses

•   A child’s college education

You can create a savings account (preferably a high-yield savings account) for whichever ones may apply. A way to make saving seamless is to automate your savings. That means setting up recurring transfers from your checking account, usually just after payday. That way, you don’t have to remember to build these accounts.

One other very important account to begin building is an emergency fund. This should hold three to six months’ worth of living expenses. It’s a great cushion to have if you are hit with a major unexpected expense or get laid off. Even contributing $20 or so per pay period is a good start. The critical thing is to begin earmarking funds in this way.

8. Invest Early for Retirement

It takes decades to save for retirement, so the younger you can start saving, the more time your savings have to grow. Once you enter the working world, if your employer offers a 401(k) plan or a different retirement account type, you may want to participate. You can really benefit from this kind of tax-advantaged saving. If your employer matches some of your contributions, that’s even better. It’s akin to free money that helps you grow your savings for the future.

Need more incentive to get a head start on saving for retirement? Consider this:

•   Say you start saving at age 25 and put away $10,000 a year for 15 years at a 6% return, and then stop saving. If that money just sits there, earning interest, you’ll have $1,058,912 at age 65.

•   Now, say you have a friend who starts saving $10,000 a year at age 35, does so for 30 years, and earns the same 6% return. Your pal will have $838,019 at age 65.

They saved twice as long as you did, but wound up with less money. That’s the beauty of compounding interest in action. And it can serve as an important incentive to start saving ASAP.

9. Pay Your Bills on Time

It may seem like a no-brainer that it’s important to pay bills on time. But doing so isn’t just about the joys of punctuality; it’s also a great way to build your credit score. Paying bills on time is one of the largest components of your credit score, and a solid credit score can help you borrow money in the future (say, when you take out a mortgage) at the best possible rates.

Not sure where your credit score stands? You can pull a free copy of your credit report annually from each of the big three credit reporting agencies to see how you’re doing and correct any errors you might find.

10. Build Your Credit

Speaking of credit scores, it takes time to build a credit history, and you need to take out credit to do so. A credit card is a great place to start. If you can apply for a credit card in your 20s and make payments on it month after month, this can positively impact your credit score. Just be sure not to charge more than you can afford to pay off.

Another tip is to keep your credit utilization ratio low; under 30% is good, and under 10% is even better. Here’s an example of how this plays out: If your credit limit is $10,000, a wise move is to avoid carrying a balance of $3,000 (30%) or more on it. Ideally, you should keep that number at $1,000 (10%) or lower.

The Takeaway

The basics for smart money management in your 20s is a combination of getting financially savvy, starting to save, and avoiding pitfalls like too much debt. Taking proactive steps today will keep your money in good shape and prepare you to navigate and enjoy the years ahead.

Having the right banking partner is also an important facet of money management at every age.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Should a 20-year-old have a financial advisor?

While hiring a financial advisor isn’t necessary, some 20-year-olds may find it valuable. This is especially true if you’re earning a high income and aren’t sure how to best save and invest your money.

How can I be financially stable at 20?

Financial stability at age 20 can involve several factors, such as spending within your means, managing debt well, and starting to save for an emergency fund and long-term goals.

What is the best financial advice for a young person?

There are several important pieces of financial advice for a young person. Finding a budget that works for you and sticking with it is valuable, as is making sure you are earning a competitive rate of interest on your emergency fund and other savings. Allocating any extra money to pay down debt, such as high-interest credit card debt, is also a wise move.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

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