How to Grow Your Wealth in Your 20s
Your 20s are a strange, yet very exciting time in your life! In your early 20s, you’re probably finishing college, working dead-end part-time jobs, and having a good time with your friends. By your late 20s, you might be working hard on your career, buying your first house, and having your first kid. It’s such a big contrast in just a few years, and all the transitions and changes can make it hard to focus on your financial future. I’ve been right where you are!
Unfortunately, you can’t just snap your fingers and go from “broke college student” to “thriving young adult.” Although that would totally be awesome, it takes more intentionality and time than that. Even if you earned a degree in a lucrative field or left high school with some cash in your pocket, building wealth and establishing good financial health isn’t always easy. In fact, most of the time it’s not easy.
However, this is one of the best times for you to take control of your money and make some smart choices that’ll set you up for success in every way. There’s a lot you can be doing right now, whether you’re still in the late nights and ramen stage of your 20s or in the corporate ladder and daycare drop-off stage!
Here’s what you can do to grow your wealth in your 20s:
How to Grow Your Wealth in Your 20s
Build a good financial foundation.
Before you can start building wealth, you need to establish a good financial foundation. Think of this as your safety net for all your financial plans! :)
Here’s what needs to be included in that foundation:
Emergency Fund
An emergency fund is one of the most important parts of building wealth. When you have an emergency fund, you don’t run the risk of going off budget or going into debt when something unexpected happens. You simply use your emergency fund, carry on, and work on building it back up again. It’s the perfect backstop to protect you from common money mistakes and the life of the unexpected!
If you have debt, start with a $1,000 emergency fund. We don’t want to postpone our debt elimination for too long. Once you’re out of debt, or if you’re already out of debt (way to go!) save 3-6 months of living expenses in your savings account. This will keep you on track with your wealth-building goals no matter what happens!
Insurance
Much like emergency funds protect you from being shaken by unexpected events, insurance protects you from big bills from accidents and health problems! However, you don’t need every insurance under the sun. Here’s what the average person needs for insurance to establish a good foundation:
Term Life Insurance - This is if someone is dependent on your income for survival (partner, kids, etc.).
Health Insurance
Auto Insurance
Homeowners or Renters Insurance
Long-Term Disability Insurance
Long-Term Care Insurance (this is for later in life when you are around 55-60+ years old.)
Identity Theft Protection
Umbrella Policy - (This is if you have a networth of $500,000 or more)
Will
No matter who you are or what your situation is, you should have a will as an adult. Even if you don’t have a million dollars in a savings account or kids of your own, you need a will to ensure all the stuff you care about goes to the right people. And, if you do have kids, it’s even more important to confirm your children go to the right guardian. Without a will, the state will decide where your items and children go. So, a will is essential for all adults.
P.S. Getting a will isn’t expensive or difficult. You can get one through Mama Bear Legal Forms in about 20 minutes for less than $200.
Form your short-term and long-term money goals.
Next, before you really begin your personal financial journey, it’s important to lay out your financial and future goals. Where do you want to be in 5 years? Where do you want to be in 50 years? Forming goals that’ll help you visualize your purpose for building wealth. Write these goals down, create a vision board, and tell a friend—whatever you need to do to keep yourself motivated and focused. If you feel lost on what kind of financial goals, start with your goals for yourself in general! 9 times out of 10, it involves having a strong money plan in place to be able to accomplish it. OR talk to a financial coach who can walk through this with you to help create these plans!
Have trouble keeping goals you set for yourself? Read my post on this HERE.
Get out of debt and/or stay out of debt.
If you follow my personal finance rules to live by, you know that I don’t recommend having any debt aside from a mortgage. No car loans, no credit cards, and no installment plans (see ya later after pay!). When you don't have debt, your money is free and available to support you and your financial goals. Plus, you’ll save thousands on interest payments and you won’t owe anyone anything. It’s a great feeling!
So, if you already have some consumer debt or student loans, work first to pay that off. Start with the smallest debt, and attack it with everything you’ve got. Then, move to the next smallest debt. Do this until all your debt is paid off and then don’t ever go back! :)
Establish a “set it and forget it” savings plan.
We talked about the need for an emergency fund earlier, but let’s be real, saving money can be really hard. (Here’s more on why saving money is difficult.) For a lot of us, putting money away just doesn’t come naturally and can be tricky when life is moving at such a fast pace. That’s okay–that’s why setting something up that saves it for you automatically makes it super easy to build your savings!
Work with your bank or your employee payroll system to set up an automatic transfer from your checking account to your savings account or from your paycheck straight to your savings. That way, the amount you want to save will come out of your main account like any other bill. No extra steps are required! And, you’ll hit your goals in no time! This is also a great way for us to manage any spending that we don’t necessarily need to be doing.
Start investing early!
The earlier the better when it comes to investing! Interest rates make your money grow over time, so the longer your money is hanging out in a retirement account or mutual fund, the more you’ll make! Yay compound interest!
Let me put it in perspective. Say you’re 25 with an average monthly salary of about $4,500, and you invest 15% of that every month. You’ll have almost 2.5 million dollars by the time you turn 67 (and, that’s if you have nothing in your accounts right now). That’s pretty incredible! Keep in mind, it’s likely you’ll make more as you grow in your career over time, so you’ll be able to contribute more dollars if you always stick to that percentage throughout the years.
Once you’ve paid off all your debt and put away 3-6 months of expenses in savings, I recommend you start saving for retirement and consider investing in mutual funds. However, before you do any investing, meet with a trusted financial advisor about your options.
Work those side hustles while you’re young.
If you’re in that stage in your 20s where you don’t have a lot of commitments outside of your primary job, work those side hustles like crazy. Dog walking, baby sitting, delivery services like doordash or postmates, or even sell unwanted clothes and items you have! Not only is it a great way to earn some extra money to set yourself up for your future goals, but it’s also the perfect way to invest in your passions. Who knows, maybe it’ll turn into a real career someday!
Even if you do have kids at this stage, don’t think the side hustle game isn’t for you! There are lots of opportunities like the ones I just mentioned that you can do with kids! Food delivery, babysitting, freelance writing, or even starting an online business are all things that can be done with baby on board! These things will give you the extra cash you need to build wealth without compromising your time with your kids. :)
Ensure whatever you start, you start debt-free. Don’t go into debt for real estate properties or equipment for a screen-printing business. Do it all with cash for the biggest return and greatest possibility of success!
Live on much less than you make.
To reach your financial goals and build wealth, you have to have money left over at the end of the month. If you don’t, you’ll just be spinning your wheels and never really moving forward. Ensure your living expenses leave you money for savings, paying off debt, investing, and being generous!
Create and follow a monthly budget.
A monthly budget is your ticket to wealth. When all of your money has an assignment and goes where you tell it to, you’ll actually see your savings grow right before your eyes. So many people try to continue without a real plan, and they’re not even sure where their money is going. Even if you have a great income, it’s so easy to overspend and focus on the needs and wants of today rather than on your long-term financial goals.
I recommend a zero-based budget where all of your money is allocated to a specific expense or goal. It’s important you don’t just know how much you’re spending on bills each month, but also how much your spending on the millions of miscellaneous categories plus what you want to invest in savings, debt elimination, or other goals. This budget should be made new every month, adjusted as needed, and followed every month!
I know you can build the wealth of your dreams with awesome budgeting habits!
Get a financial coach.
Think of a financial coach as a personal trainer for your money. Just like most of us need accountability and wisdom to get fit and stay healthy, many of us need support to reach our financial goals and build wealth. Regularly meeting with a financial coach will help you stay on track, clear hurdles, and reach your goals!
Your 20s are one of the best times to build wealth for the future!
I hope this post encouraged you and showed you what’s possible in your 20s. This is the perfect time to set goals and develop financial wellness. I want your money to work for you, and I want you to achieve the wealth you’re dreaming of. :) Follow these tips, browse the blog, and join me for financial coaching, and we’ll get you to where you want to be. Let’s take the first step toward an amazing financial future!
Action Steps:
Take time to write out your short-term and long-term financial goals, and visualize how these tips will help you achieve those objectives.
Make a budget using an Excel spreadsheet, pen and paper, or a budgeting app like EveryDollar. Then, commit to following it! (Keep in mind that if it's your first budget, it'll take a couple of months to get it perfect. Give yourself grace and adjust until it works.)
