Have big dreams for your money, but not a ton of know-how yet? No sweat. These money tips for your 20s can help you reach your goals.
Your 20s can be a hugely transformational time. It’s when you may move out on your own, kick off your career, and really start getting to know yourself.
Part of coming into your own means creating good habits that you can maintain. And it’s easier to learn those habits early in life, rather than have to correct poor habits later, says Bright Dickson, co-host of Money and Mindset With Bright and Brian.
“In your 20s—as you start to learn what it is that you really value—it’s the time to establish money habits that are in line with your values. And those values can change as you grow and develop,” Dickson says.
Making sound financial decisions now while in your 20s can help create better opportunities for you down the road.
Hey there, fellow twenty-something! If you’re reading this, you’re already ahead of the game. Most people our age are too busy living in the moment to worry about savings goals. But trust me, your future self will thank you for taking these first steps toward financial freedom.
I’ve been where you are – confused about where to put my money, wondering if I should be saving more, and sometimes feeling like I’m the only one worried about my financial future while my friends are busy living their best lives on Instagram. Let’s break down exactly what you should be saving for in your twenties without the confusing jargon or unrealistic expectations.
Why Starting to Save in Your 20s Matters (Like, Really Matters)
Your 20s might seem too early to worry about saving money, but it’s actually the perfect time to start. Why? Two magical words compound interest
When you start saving in your 20s, your money has more time to grow. According to data from the Federal Reserve Board’s 2022 Survey of Consumer Finances, the average American under 35 has only about $20,540 in savings. That’s way less than the $100,250 that those aged 65-74 have managed to save.
But here’s the crazy part – if you start investing at age 25 with just 5% of your income (assuming the average income) you could have around $575714 by age 65. Wait until 45, and you’d only have about $136,842. That’s a HUGE difference!
Your Top Savings Priorities in Your 20s
1. Build That Emergency Fund (Like, Yesterday)
The absolute first thing you should save for is an emergency fund. Life has a funny way of throwing unexpected expenses at us when we least expect them.
How much should you have? Aim for 3-6 months of living expenses. For someone under 25 the average monthly expenses are about $4,130, which means you’d need between $12390 and $24,780 saved for emergencies.
I know that sounds like a lot, but start small. Even putting away $50-100 per paycheck adds up faster than you think.
Where to keep it: Look for high-yield savings accounts or money market accounts that are easily accessible. These accounts keep your money liquid (meaning you can get to it quickly) while earning a bit of interest.
2. Crush Your Debt (Especially the High-Interest Stuff)
Before you go all-in on other savings goals, tackle your debt – particularly high-interest debt like credit cards.
Here’s my strategy:
- Focus on high-interest debt first (like that credit card with 20% interest)
- Then move to lower-interest debts (like car loans at 5.5%)
- Consider debt consolidation if it makes sense for your situation
Building good credit now will help you qualify for better loans later when you want to buy a house or car. A secured credit card or credit builder loan can help establish good credit if you’re just starting out.
3. Start Retirement Savings (Even If It Feels Super Far Away)
I know, I know – retirement feels like it’s light years away. But starting your retirement savings in your 20s is probably the smartest financial move you can make.
According to JP Morgan’s 2024 Guide to Retirement, a 25-year-old making $50,000 a year should aim to save 5% of their income for retirement. Wait until 50, and that jumps to 24%!
What to do:
- If your employer offers a 401(k) with matching contributions, sign up IMMEDIATELY. It’s literally free money.
- If you don’t have an employer plan, consider opening an IRA (Individual Retirement Account)
- Start with what you can afford, even if it’s just 1-2% of your income
4. Save for Major Life Goals (Home, Education, Travel)
After you’ve got your emergency fund, debt plan, and retirement savings started, you can begin saving for those bigger life goals.
Home Down Payment:
If buying a home is on your radar, start saving now. To avoid paying private mortgage insurance (PMI), you’ll need to save 20% of the purchase price for a down payment.
Further Education:
Want to go back to school or get an advanced degree? Setting aside money now can help reduce student loan debt later.
Travel Fund:
Life isn’t all about saving – it’s about experiences too! Setting up a dedicated travel fund lets you see the world without racking up credit card debt.
How Much Should You Actually Be Saving?
According to the 50/30/20 budget framework, 20% of your after-tax income should go toward savings and debt repayment. For 20-24 year olds making the median monthly salary of $3,136, that’s about $627 per month.
If that seems impossible right now, don’t panic! Start with whatever percentage you can manage and gradually increase it. For example, begin with saving 5% of your income, then bump it up by 1% each year until you reach your target.
Practical Savings Tips That Actually Work
1. Automate Your Savings
This has been a game-changer for me. Set up automatic transfers to your savings account on payday so you never “see” the money in your checking account. You can’t spend what you don’t see!
2. Track Your Spending
Use a budgeting app or simply keep a daily spending record. This helps you identify where your money is actually going and find areas to cut back.
3. Watch Out for Subscription Creep
Those $9.99 monthly subscriptions add up FAST. Do an audit of all your subscriptions and cancel any you don’t regularly use.
4. Avoid Impulse Buys
The 24-hour rule has saved me tons of money. If I want something non-essential, I wait 24 hours before buying it. Most of the time, I realize I don’t actually need it.
5. Save Windfalls and Raises
When you get a bonus, tax refund, or raise, try to save at least half of it instead of immediately upgrading your lifestyle.
Smart Tools to Help You Save
Take advantage of technology to make saving easier:
- Savings Buckets: Many banks now offer digital “buckets” within your savings account to organize funds for different goals.
- Recurring Transfers: Set these up to automatically move money from checking to savings.
- Surprise Savings Boosters: Some banks offer features that analyze your spending patterns and automatically move small amounts to savings when you can afford it.
Real Talk: What If I Can’t Save 20% Right Now?
Listen, I get it. Between student loans, rent in expensive cities, and entry-level salaries, saving 20% might seem impossible. That’s okay! Financial advice is meant to be guidelines, not strict rules that work for everyone.
Start with what you can – even if it’s just 1% or $10 a week. The important thing is to develop the habit of saving regularly. As your income grows and debts decrease, you can gradually save more.
Remember that time is on your side. Even small amounts saved consistently in your 20s will grow significantly over time thanks to compound interest.
My Personal Savings Journey
When I first started working in my early 20s, I could barely save anything after paying rent and student loans. I started with just $25 per paycheck going to an emergency fund. It wasn’t much, but over time I increased it as my salary grew.
The key was consistency. I didn’t beat myself up when unexpected expenses came up (like when my car needed repairs and wiped out half my emergency fund). I just kept rebuilding it, little by little.
Now in my late 20s, I have a decent emergency fund, I’m contributing to my 401(k), and I’m slowly saving for a down payment on a house. It didn’t happen overnight, and I’m nowhere near the “ideal” savings amounts you see in some financial articles – but I’m making progress.
Final Thoughts: Balance Is Everything
Your 20s should be about building good financial habits while still enjoying life. The goal isn’t to save every penny at the expense of experiences, but to find a balance that works for you.
Save consistently, but also make room in your budget for things that bring you joy and fulfillment. Financial security isn’t just about having the most money – it’s about creating a life where money stress doesn’t dominate your thoughts.
Whatever you do, just start somewhere. Your future self will thank you for every dollar you save today.
Have you started saving yet? What are your biggest financial goals for your 20s? I’d love to hear about your experiences in the comments below!
Remember: Financial advice is never one-size-fits-all. Consider consulting with a financial advisor to create a personalized savings plan that takes your unique situation into account.
Build a solid credit score.
As you continue to tackle your debt burden, keep an eye on your credit score, too. Managing debt will help build your credit score over time—and a score above 720 can make borrowing easier and less expensive when you’re ready for bigger money goals like buying a home.
If you’ve never taken on any debt before, you probably don’t have much of a credit history. To build a credit history, you need to use credit—and applying for a credit card is one way to do this. As long as you pay off your balance in full each month, you won’t pay interest, and you’ll prove to lenders that you’re a reliable borrower. While building your credit history is important, don’t feel like you need to fill out every new credit application that comes your way. The reason? A portion of your credit score is based on the average age of your accounts. New credit applications also typically count as “hard inquiries,” which can each temporarily drop your credit score by a few points. If lenders see multiple credit applications in a short time frame, they may view it as an indicator of financial instability.
Make sure you’re covered for different scenarios.
Although it may not seem like the most exciting financial topic in your 20s, good insurance policies can help stop bad situations from getting worse. And you’ll likely need to navigate leaving your parents’ coverage and signing up for your first policies.
In terms of both protection and education, a top goal for your 20s should be to cover yourself with the fundamental types of insurance, like auto, health, and home or renters’ insurance. Starting with these basics can help you learn the intricacies of insurance as you decide which types of policies and how much coverage you really need to have peace of mind.
I’m 23, How Should I Be Investing?
FAQ
How much money should you save in your 20s?
Your 20s is the time to set strong savings habits. Using the 50/30/20 model, you could aim to save upward of $500 every month (or as much as you can). Saving where and when you can and being strategic with windfalls (such as a bonus), and dedicating additional income (like an annual raise) can help you work toward this goal.
Should you start saving in your 20s?
Starting to save in your 20s is really important for a few big reasons. First and foremost, you have time on your side. The earlier you start saving, the more compound growth can work for you. Once you invest money, that money will produce returns. The returns are reinvested, so your balance grows without you having to put more money in.
Should you save for retirement in your 20s or 30s?
Saving for retirement in your 20s and 30s means your money has more time to potentially benefit from compounding investment returns. Using workplace retirement plans and employer matches, health savings accounts, and individual retirement accounts such as a Roth IRA means your savings could potentially grow tax-free.
How much money should you save in your 30s?
Whether you’re starting a family, buying a house or launching a business, saving continues to be essential in your 30s. Saving upward of $800 each month can sound like a daunting task, but consistency is key as you work toward any goal. How much do you need to save in your 40s?
How much money should a 25-year-old save a year?
By way of example, JP Morgan concluded that a 25-year-old making $50,000 a year should start saving 5% of their income. In contrast, a 50-year-old making $50,000 a year needs to save 24% of their income to get on track.
Are your 20s a good time to make money?
Your 20s are a time to set goals and make important financial decisions. Get nine basic money moves to make in your 20s to help create a bright financial future.
How much savings should I have in my 20s?
In your 20s, financial experts often recommend saving at least 20% of your income. However, the exact amount you should save depends on your individual financial goals, lifestyle, and expenses.
Is $10,000 in savings at 25 good?
Having $10000 in savings is a notable accomplishment, especially when considering your age and financial stage. If you’re in your early 20s, say around 23 to 27, this achievement is truly commendable. It showcases your commitment to financial responsibility and lays a solid foundation for your future endeavors.
Is 30k saved at 30 good?
Generally, experts recommend have one times your salary saved by age 30 and eight times saved by 60. If you’re feeling behind, there are several ways you can boost your retirement and emergency savings starting now.
Is 20k in savings at 25 good?
Having $20000 saved by the age of 25 can be considered a significant achievement, especially when compared to national averages. Here are a few points to consider: National Averages: Many young adults may have less than this amount saved by 25 due to student loans, living expenses, and entry-level salaries.