For those looking back at our 20s through the experienced lens of midlife, most of us remember our first “real” jobs, responsibilities like having our own apartment and car insurance, and an uncertain future. We might also look back at fond memories, happy hours, close friendships and – if we were lucky – a few good relationships
And, amidst it all, we probably made our fair share of money mistakes. Past generations didn’t talk about money with our parents, and it led to a huge lack of financial education. We also didn’t have websites like this one to guide us on our financial journey.
Today’s 20-somethings, although they might struggle with student loan debt and home prices that might make homeownership seem impossible, have vast resources to help them make better financial decisions to create a brighter financial future.
Here are 21 things I wish I knew about managing money in my 20s.
1. Track Your Income and Expenses Like a Pro
The first step to managing your money is knowing exactly how much you have coming in and where it’s going. Whether you’re juggling income from a full-time job, side hustles, or gig work, it’s important to calculate your take-home pay after taxes and deductions like health insurance.
To keep spending in check, tools like Mint, You Need a Budget (YNAB), or Personal Capital can help track income and expenses automatically. These apps give you a clear picture of your spending habits and identify areas where you might cut back.
One popular approach is the 50/30/20 rule:
- 50% of your income goes to needs like rent, utilities, and groceries.
- 30% is for wants, such as dining out and entertainment.
- 20% should go toward savings and debt repayment.
Using this framework, you can create a balanced budget that prioritizes both your current lifestyle and your financial goals.
2. Develop Good Budgeting Habits
Armed with knowledge of your income and expenses, you can develop good budgeting habits. A well-crafted budget is a cornerstone of effective financial planning. It helps manage your finances and prepares you for future financial goals. You can use various apps or traditional spreadsheets to monitor your spending and adjust as needed.
Review and modify your budget as needed to ensure you have enough money for necessities, savings, and some leisure activities, making your 20s more enjoyable.
Check out the best budgeting apps of 2025.
3. Start Saving for an Emergency Fund
An emergency fund is a safety net that provides financial support during unexpected expenses. Whether it’s sudden car repairs, medical bills, or job loss, having money saved provides a sense of financial security.
Automating your savings can simplify the process. Consider setting up a direct deposit or an automatic transfer from your checking account into your savings account. Aim for at least three to six months of living expenses in your emergency fund.
4. Tackle High-Interest Debt with the Right Strategy
Managing debt is key to financial stability, especially when dealing with high-interest balances like credit cards. Two popular methods to pay off debt are the debt snowball method and the avalanche method, and each has its benefits depending on your goals.
- Debt Snowball Method: Focus on paying off the smallest balances first while making minimum payments on other debts. Once you eliminate a small debt, roll that payment into the next smallest debt. This approach provides quick wins, which can be motivating and build momentum.
- Debt Avalanche Method: Prioritize debts with the highest interest rates, while making minimum payments on lower-interest debts. This strategy minimizes the total interest you’ll pay, saving you more money in the long run.
The snowball method works well if you need quick psychological victories to stay on track, while the avalanche method is ideal if reducing overall costs is your top priority. Choose the method that fits your situation, and stay consistent to make progress.
5. Build a Strong Credit History
Building a strong credit history is a smart money habit to develop in your 20s. Credit card companies, lenders, landlords, and even some employers review your credit history to evaluate your financial reliability.
Maintaining a low credit card balance, paying bills on time, and not borrowing more than you need are some healthy financial habits that can build a good credit score. Regularly checking your credit reports can help ensure they reflect your financial behavior accurately.
New to credit? Learn how to build credit from scratch.
6. Begin Retirement Savings Early
One of the smartest money moves you can make in your 20s is to start saving for retirement. Utilizing a retirement account, especially one with employer-matching, is an excellent way to harness the power of compound interest. The earlier you start saving, the more time your money has to grow.
Even if you don’t have a lot of extra money right now, you should still start putting something aside each month. Even small amounts can add up over time and make a big difference in the long run.
7. Start Investing
Investing can seem intimidating, but it’s a great way to grow your wealth over the long term. With a multitude of options available, from stocks and bonds to real estate and mutual funds, find what fits your risk tolerance and investment objectives.
It’s wise to seek investment advice from a certified financial advisor who can guide you through the process. Remember, investing is about long-term gains, not get-rich-quick schemes.
Here are some tips on how to get started investing.
8. Protect Yourself with the Right Insurance
Renters insurance is surprisingly affordable, often costing just $10–$20 a month. Despite the low cost, it can cover stolen or damaged belongings and even liability claims if someone gets hurt in your home. It’s an easy way to avoid unexpected financial headaches.
For life insurance, term-life is typically the best choice for younger people. It’s simple, lasts for a set period like 20 or 30 years, and is far more affordable than whole-life insurance. Whole-life policies include an investment component but come with much higher premiums, making them less practical for most 20-somethings.
9. Take Advantage of Free Money Opportunities
Free money might sound like a myth, but there are real ways to boost your finances with little effort. If your employer offers a 401(k) match, make sure you’re contributing enough to take full advantage—it’s like getting a bonus toward your retirement.
Credit card cash back programs and sign-up bonuses for new accounts are other easy ways to pocket extra funds. Redirect these windfalls toward savings, investments, or paying down debt to make the most of them.
10. Maximize Your Employer Benefits
Your employer’s benefits package is more than just a perk—it’s a chance to save money and protect your future. Beyond retirement matching, look into options like health and life insurance, disability coverage, and flexible spending accounts (FSAs) for healthcare or childcare expenses.
These benefits can reduce out-of-pocket costs and provide financial security. Take full advantage of what’s available to make the most of your total compensation package.
11. Set Financial Boundaries
Learning to say no is an underrated financial skill. It’s easy to feel pressured to join friends on pricey trips, dine out regularly, or chip in for things you can’t afford. However, staying firm with your financial priorities will help you avoid unnecessary debt and stay on track with your goals.
Be honest about your limits and suggest budget-friendly alternatives, like a potluck dinner or a day at the park. True friends will respect your boundaries, and you’ll thank yourself later.
12. Minimize Lifestyle Inflation
As your income increases, it can be tempting to upgrade your lifestyle proportionally. However, keeping lifestyle inflation in check is an important financial habit. Instead of spending more, focus on using the extra income to boost your bank account, pay down debt faster, or invest more for your future.
13. Set Clear Financial Goals
Having clear financial goals provides direction for your money. Your goals might include saving for a down payment on a house, paying off your student loans by a certain date, or reaching a certain amount in your retirement accounts. By setting clear, measurable goals, you can track your progress and stay motivated.
14. Automate Your Finances
Automation can be a powerful tool in managing your money. Automated transfers to your savings account can help ensure you’re consistently saving money, while automated bill payments can help avoid late fees and protect your credit score. Set up these automatic processes to reduce financial stress, save time, and create good life-long habits.
15. Learn to Negotiate
Whether it’s negotiating your salary, your rent, or the interest rate on your credit card, this skill can save you a significant amount of money. It’s worth investing some time to learn negotiation strategies and techniques.
See also: How to Negotiate Your Bills to Save Money
16. Keep an Eye on Your Net Worth
Your net worth, which is the total of your assets minus your liabilities, is a good overall measure of your financial health. Regularly track your net worth to stay focused on your financial goals and see your progress over time.
17. Start a Side Hustle
If you have a skill or passion that you can monetize, starting a side hustle can help boost your income. Whether saving for a big purchase, paying down debt, or investing for retirement, earning more will help you reach your goals faster.
18. Get Comfortable with Taxes
Taxes can feel overwhelming, but getting familiar with the basics will save you money and stress. Know your tax bracket, deductions, and credits you might qualify for, such as the student loan interest deduction or the earned income tax credit.
If you’re self-employed or have multiple income streams, set aside about 25–30% of your earnings for taxes to avoid surprises. Tools like TurboTax or H&R Block can simplify filing, but don’t hesitate to seek advice from a tax professional if you need help.
19. Establish a Regular Financial Check-in
Regularly checking in on your finances can help you stay on top of your money and catch potential issues early. This might include reviewing your budget, tracking your spending, reviewing your credit report from each of the three major credit bureaus, and assessing your progress in achieving financial independence.
20. Continue to Educate Yourself on Personal Finance
Financial literacy is a lifelong journey. In the digital age, countless resources, including blogs, podcasts, and online courses, are available at your fingertips.
Keep educating yourself about building credit, managing debt, investing, and building your savings. Knowledge is the key to financial success, and learning about these personal finance topics can help you make informed decisions.
21. Be Generous
Generosity doesn’t always have to involve money. When your budget is tight, consider donating your time or skills to causes you care about. Volunteering at a local shelter, mentoring someone, or offering your expertise to a community project can make a meaningful impact. Giving back, in any form, not only helps others but also brings a sense of fulfillment and connection.
Conclusion
Building smart financial habits in your 20s doesn’t have to happen overnight. Pick one habit to focus on this week—whether it’s creating a budget, starting your emergency fund, or automating your savings. Small steps today can lead to major wins tomorrow.
And remember, it’s okay to make mistakes. What matters most is learning from them and staying committed to improving your financial future. The habits you develop now will lay the groundwork for a lifetime of financial success.