The Beginner’s Guide to Building Better Financial Habits in your 20’s

Our twenties are such an exciting time. We’re stepping into adulthood fully, for the first time, and really becoming independent. There’s so much freedom that we have now that we didn’t have before!

Just think about it! We’re no longer on a college campus, we don’t have to submit homework assignments, and we really aren’t answering to anyone but ourselves. But, with this newfound Independence comes newfound responsibility.

On the flip side, many of us now have access to lines of credit for the first time and are making way more money than we ever could have dreamed of just a year or two ago. We now have access to capital in a totally new way that would have our college selves shook.

But, as I’m sure you’ve guessed, unchecked access and a lack of discipline become a recipe for disaster. It becomes effortless to overspend, make bad decisions, and land ourselves in a deep, deep hole!. To avoid all of that, here are 8 tips that you should Implement in your twenties to get on track to having a healthy financial future.

1. Stick to a budget

Budgeting can be challenging, but it’s one of the most important habits and skills you can develop in your twenties (and even earlier if possible). It’s crucial to make sure that you have your finances in check and spending under control. You also want to establish a financial cushion for yourself in case of an emergency.

Budgeting can be challenging at the moment. It repeatedly forces us to choose between our wants and our needs (saying no to a cute pair of shoes is enough to make anyone cry, let’s be real). However, the joy you’ll feel by watching yourself stick to a plan that directly benefits you will be so gratifying over time.

Budgeting does not have to be painful. You are allowed to create an allowance for the things that you actually enjoy! Think shopping, dining out, entertainment, etc.

After accounting for your regular expenses, set your bounds for each area of your budget plan and try your best to stick to them.

Doing regular reviews of your plan will help you to see where you overspend and can afford to cut back or where you might have more wiggle room. They can also prevent you from overspending in the same areas in the future because now you have more awareness of your habits.

It’s easy to save some money (we’ll talk about paying yourself first later on) and then spend without a budget. Still, you’ll quickly see that you’re spending tons of money (more than you think) and have no idea where it goes. Setting up a budget allows you to see where exactly your money is going each month and how much you’re spending in each category.

Having this type of awareness is a game changer! It does not have to be a source of guilt but can help you establish new and more healthy financial habits and boundaries.

Some useful apps for budgeting include Truebill and Mint. You can also look around online or in your area for a financial advisor who specializes in budgeting. They can make you a personalized budget if you have trouble deciding how much money to spend or categorizing your spending. I did this for myself, and it definitely made a huge difference when it came to loan repayment and allocating my funds for my savings goals.

2. avoid eating out

This one is tough, especially if you consider yourself a foodie. In this day and age, apps like Uber Eats, Doordash, and GrubHub make it so easy for you to get your favorite foods with the tap of a button. Still, you definitely want to make sure that you’re keeping this under control over time.

If you’re a social eater like most of us, this can be even more difficult if you prefer to spend time with your friends over food. A straightforward fix for this is to schedule cooking dates with your friends instead of going out to eat. You all can pool the money for groceries and cook together rather than going out to a fancy dinner.

We all love the glamour of a fancy dinner, but it is so easy to recreate this feeling of glamour at home with your friends! For example, Try making a charcuterie board and buying a nice bottle of wine. You will be shocked to see how much cheaper a bottle of wine is at the wine store than at a restaurant where you pay forced markups.

Having a cooking date with your girls will save you tons! You also have a lot more control over what you’re eating; it can be a fun way to get together. Also, who doesn’t have a good charcuterie board?

If takeout is your vice, self-control will be make or break when it comes to your spending. Try giving yourself an allowance when it comes to ordering out. This is also why it’s essential to have a budget! By giving yourself a subsidy or a restriction for the number of times you can order out for the week, you’ll instantly begin to cut down on your expenses.

What I like to do is treat myself on a Friday for making it through the week! So rather than ordering out two to three times, I’m now only ordering out once a week. Also, by setting a budget at the beginning of the month, you will begin to calculate very quickly how many times you can order food. It’s just about taking those preliminary steps to make these things easier for yourself.

3. plan for your retirement

You don’t want to wait until you’re 40 to start thinking about your retirement, especially if you plan to retire early and live a very glamorous lifestyle (I definitely do, no shame here honey!). It is very daunting to think about retirement, mainly because it’s so far away, but that is one of the benefits of starting young!

Any money that you invest now has the opportunity to compound. Investing $100 today is way more potent than you investing the same amount of money 5 years from now because it can grow through interest.

If you’re making an investment in a 401k, which can include stocks and bonds, it can grow at even larger rates! Your employer may even match your contributions at a specific rate, which would be way higher than the average annual stock market return! Allow your money to work for you by contributing as much as you can as often as you can to accounts with higher interest rates (for example, a high yield savings account or a retirement account like a 401K or Roth IRA)

it would be such a shame to reach 50 years old and realize that you have to work way longer than you anticipated because you failed to establish healthy habits in your twenties; a little goes a long way, even investing 10% of your income towards your retirement by opening up a 401k, or a Roth IRA can make a massive difference to your financial future

4. pay off your debt

Do not believe the hype. Having debt of any kind is not fun. Many people say that they don’t believe in loan forgiveness because they already forgave themselves for that debt. Though I do think that’s hilarious, honestly, I die laughing every time I read those tweets because…relatable! But it’s vital to consider things like your total net worth.

If you’re curious about net worth, download the app Wealthfront. Still, it’s imperative to consider that your total net worth comprises your assets and liabilities so you could gross 100K and amass that in your checking account. However, If you are 200K in student debt, your net worth is now $-100K. Totally different feeling, right?

Also, it’s important to note that not paying off your debt can ruin your credit. This is something so critical to those essential purchases you’ll want to make on your own such as a car, home, or if you need a business loan. Having good credit is vital, so running from your debt will definitely not improve the situation.

Pretending it does not exist does not make it go away! Especially in the case of high-interest debt, which usually is the case for most credit cards. If you have any high-interest debt and have already established a rainy day fund, you’ll definitely want to prioritize paying it off. The rate at which this form of debt grows will surpass your savings rate. Making the small sacrifice to bulldoze these depts will be worth it in the long run. Make this a priority!

5. invest your money

Investing can definitely be scary because there’s a huge learning curve but don’t allow this fear to hold you back! Suppose you are not knowledgeable about the way the stock market works. In this case, you can go the independent route and educate yourself about the market and personal finance, or you can find a trusted financial advisor to help you!

Some options are less risky, so you should figure out your risk tolerance before you start investing. Some possibilities are ETFs, mutual funds, and even your 401k contributions count as investing. Don’t let the fear of losing money keep you from making passive income! There are options for every level of risk tolerance.

Making more long-term Investments such as in real estate or stock can grant you a larger return than letting money sit in your checking account.

You can also even open up a high-yield savings account in addition to your everyday savings for long-term purchases, such as for travel or for purchasing a home. A high-yield savings account is one with a higher interest rate. It allows your money to compound and collect interest rather than just sitting there as it usually does in your standard savings account.

6. pay yourself first

When you receive your paycheck, you have to pay yourself first. Think about it: You’ve worked so hard to earn your money, why wouldn’t you want to reward yourself with payment before giving that same gift to everyone else? Give yourself the gift of an emergency cushion or the ability to make a large purchase in the future if you have a specific goal.

First, you should be allocating a certain percentage of your income to emergencies. Once that’s taken care of, tackle the rest of your bills and expenses. Many people make the mistake of telling themselves that they will save whatever is leftover. But how many times have you tried to save “whatever’s leftover” only to find that there’s nothing left?

By putting this money away first, you don’t even have to think about the process anymore! This also guarantees that you can grow your savings account while also tending to your expenses and your other recreational needs.

Pro tip: You can also make this process easier by automating your savings with direct deposit rather than sending your total payment to your checking account. You can often split these payments how you choose and even do this for as many accounts as You Wish according to your employer’s policy! Definitely double-check with your employer about this option if it’s hard for you to remain consistent in your savings process.

7. use cashback and coupons

Check with your credit card company to see if they offer a cashback option for your everyday purchases! The percentage might be meager, but some money saved is better than no money. It is a great feeling to know that you can save on the everyday items you would purchase anyway! Another great option is Rakuten.

Again the percentages for savings are not very high. Still, even if you check your monthly statement and see that you got $12 back, those are $12 that you wouldn’t have had otherwise! I would definitely recommend doing research on cashback services.

There are also apps like Honey and Shoptagr, which find you coupons automatically while you’re shopping. These plug-ins search the internet for discount codes so that you don’t have to. A simple Chrome plug-in can save you tons of money while you’re shopping, even more so if you are a Shopaholic.

8. set up a sinking fund

Sinking funds help you avoid overspending on gifts and large purchases. Rather than making an impulse buy on an expensive item, you can save the money towards it so that way you can make the purchase guilt-free.

Try to set up a minimum threshold for your sinking funds. For example, any purchase over $150 is one that you need to set up a sinking fund for. You’ll quickly see how much discipline this can teach you and how much money it can save you in the long run.

Some apps that are helpful for this are digit. However, you can also set up a separate checking account that you put money into every time you get paid as an alternative.

If you’re interested in signing up for digit, begin your savings journey here!

Conclusion

These were our tips for money habits that you should begin in your 20s. Our twenties are a time for so much learning and growth. There is so much power in establishing healthy financial habits and not worrying about making a grave choice between your needs and your wants. However, this only comes through finding balance and creating discipline in your life regarding finances. Let us know which ones were you are favorite and how you plan to work towards a healthy financial future at this young age.