It’s never too soon to begin building your wealth and planning for success. Your 20s are the ideal time, although it can be challenging to know where to begin.
To help you start on the right track, we’ve put together this list of 12 smart ways to build wealth in your 20s that you can put into action today.
Key takeaways
- Create a personal budget, then use a budget app to keep your finances on track.
- Invest in yourself by focusing on personal and professional development.
- Develop multiple income streams—such as starting a business or getting your real estate license—to increase your savings and investments.
- Pay down high-interest debt as soon as possible, then use the extra money to pay yourself by saving and investing.
- Use a 50-50 strategy to allocate raises, bonuses, tax refunds, and windfall income between yourself and your savings.
Is it possible to build wealth in your 20s?
Not only is it possible to build wealth in your 20s, but it’s also the ideal time to begin. Your entire career is ahead of you, and you have more opportunities than ever before. Now is the time to make a financial plan.
Even if you don’t have the ideal job, live with roommates, or are dealing with student loan debt, you can begin building wealth today by making the right choices with money.
12 smart ways to build wealth in your 20s
Here are 12 key steps to take in your 20s that can lead to serious success and future wealth.
1. Create a personal budget
If you want to start building wealth in your 20s, you’ve got to have a plan. Create a personal budget, then download a budget app like Mint, Personal Capital, or Honeydue for budgeting with a partner to help you stay on track.
Some people pay cash for everything to spend less, while others allocate a fixed percentage of their income to things like rent, utilities, personal expenses, and debt repayment. The important thing is to set up a budget, then stick to it as closely as possible, so you aren’t living paycheck to paycheck.
2. Put your money on autopilot
Set up recurring payments for your bills, retirement contributions, personal savings, and rainy day fund. As soon as your money hits the bank, funds will automatically be diverted without you having to lift a finger or run the risk of second-guessing yourself.
It’s a good idea to review your payments at least once or twice a year to look for ways to improve. By periodically fine-tuning your payments, you may find that you can increase your savings and investments over time.
3. Lower your living expenses
Having a budget and automatically allocating your income can keep living expenses and lifestyle creep under control. Amazon makes it far too easy to buy things that you don’t really need, which is why Jeff Bezos is a multibillionaire.
In addition to cutting back on splurges, try eating in more, getting a roommate, downgrading your TV subscription, or cutting the cable altogether. The more money you save from living frugally, the more money you’ll have to invest, which allows you to grow your wealth faster.
4. Increase your retirement contributions
Maxing out your retirement contributions is like finding money you forgot is there. Every dollar you put into a retirement account like a 401(k) or Roth individual retirement account (IRA) grows with compound interest and is tax free until you begin to make withdrawals. According to Merrill, a 25-year-old who invests just $75 each month could have more than $263,000 by the age of 65, assuming an 8% rate of return.
5. Earmark extra income
Throughout your career, you’ll likely get raises, bonuses, and maybe even an inheritance. You can use the extra income to improve your standard of living, but be sure to set some money aside.
Some experts suggest using a 50-50 strategy, where 50% of your extra income goes to you and the other 50% to savings or investments. This strategy also applies to tax refunds.
6. Stop debt in its tracks
The average American has over $80,000 in debt, excluding a mortgage, according to a recent Experian consumer credit review. Unfortunately, much of that is high-interest debt like credit card debt, which can have interest rates as high as 30%.
Even if you don’t have a lot of income coming in, try to make at least the minimum payment, or consider consolidating credit card debt onto a card with a lower interest rate. While it isn’t easy, paying down debt and avoiding additional debt can reduce your stress and provide extra cash for building wealth instead of paying interest to a credit card company.
7. Create a rainy day fund
Paying down debt also makes it much easier to create a rainy day fund for when emergencies arise. Over half of Americans can’t cover a $1,000 emergency expense with savings.
If you want to build wealth in your 20s—or at any age—you’ll need to start setting a little money aside each month. Many experts suggest having between 3 and 6 months of income in a rainy day fund to avoid borrowing money when something goes wrong.
8. Invest in yourself
A lot can happen over the coming decades, and the more skills you have, the better position you’ll be in to seize opportunities as they come along. Begin by looking at your talents and skills objectively or asking a good friend for their unbiased opinion.
Then, develop strategies to maximize your strengths by focusing on both professional and personal development. Consider taking a foreign language class, attending networking events, or even getting your real estate license to earn a little extra income.
9. Start a business
Starting a business when you’re young can be an excellent way to develop multiple income streams to begin building wealth. But having your own business doesn’t mean quitting your day job, at least not at first.
Extra income can come from a part-time job or side hustle or recurring income streams, like renting out a spare bedroom or investing in a dividend-paying stock like a real estate investment trust (REIT).
10. Invest for the long term
One of the challenges of investing in your 20s is avoiding emotional decision-making during market fluctuations. Volatility is normal, although some assets like real estate have an extremely low correlation to stock market fluctuations.
To avoid panic-buying or -selling, create a diversified investment portfolio and leave it alone. Starting today will put you light-years ahead of your peers who might hit the sell button during market corrections.
11. Focus on income
Money that’s invested wisely has a way of taking care of itself. This means you can focus your time and energy on increasing your income instead of worrying about your investments.
When you’re in your 20s, the majority of your future wealth will come from the difference you create between your income and expenses. Investing in yourself and creating multiple income streams are good ways to increase your income while living below your means when you’re young.
12. Surround yourself with positive people
According to self-help author and speaker Tony Robbins, raising your standards can change your life, relationships, and business. To be fair, sometimes that’s easier said than done.
One of the most significant challenges in life today is negativity and divisiveness, according to Robbins. But, he says, when you consistently surround yourself with positive, successful people, you can become more positive and successful yourself. Some tips for reaching new heights of success include letting go of negative relationships, getting outside of your comfort zone, and connecting with smart, hardworking people.
Closing thoughts
Even when you’re just starting out, you have a measure of control over how you live, how much you spend, and how much you save.
Begin by putting together a personal budget. Put your money on autopilot by setting up automatic payments, including savings and retirement plan contributions, to reduce the risk of second-guessing yourself. Stay positive and focused on your financial goals by surrounding yourself with like-minded people.
