A Guide to Personal Finance in Your 20s

Young man and woman talking about personal finance in your 20s

Key Takeaways

  • Start tracking your income and expenses to understand where your money is going. This can help you create a realistic budget.
  • Build an emergency fund with 3-6 months of living expenses in case of job loss or other financial disruption.
  • Manage any student loan or credit card debt through organized payments and a debt payoff plan.
  • Begin building your credit by making on-time payments and keeping credit card balances low.
  • Start saving for retirement as early as possible, even small amounts, to take advantage of compound interest over time.

Your 20s can be an exciting time. These years tend to be full of new adventures, including college, new jobs and big life decisions. It may also be a good time to start thinking about your financial future. After all, it's never too early to start building good habits with your money, whether that means establishing a budget or saving for retirement.

To help you start preparing for the future, here are some things to keep in mind as you navigate personal finance in your 20s.

Learning How to Budget

In your 20s, it's not uncommon to move away from your childhood home and start your first or second big job, and with that change can come new financial responsibility.

Once you're out on your own, it's easy to realize just how much things really cost and how all of those expenses can add up. It might feel overwhelming, but creating a budget could help you stay organized.

Maintaining a budget could involve tracking your salary and expenses to see what money you have leftover. Then you could use that information to develop spending and saving habits that could help you focus on specific goals. These could include saving for retirement or saving for your first house.

Considering Life Insurance

Even if you're young and healthy, you may want to consider your life insurance options. Many employers will offer life insurance and other policies as part of a benefits package, but you can also purchase coverage on your own. You might do so if your employer doesn't offer the benefits you want, or if you simply don't like the policies available.

Starting an Emergency Fund

An emergency fund involves setting money aside to help cover your living expenses during an unexpected downturn. It's different than a rainy day fund, which is something meant to cover smaller one-time costs, like car repairs or a surprise bill.

You might consider saving enough for three to six months of living expenses in the event that your income could be disrupted. You can likely have money taken directly from each paycheck and put in a separate account. Having this money set aside might help you get through a few rough months. You could shape your budget to include building your emergency fund in your 20s.

Managing Debt

Even if you're just starting out on your own financially, that doesn't mean you're necessarily debt-free. Many college graduates face substantial student loan debt, and you might also have credit card debt at this age.

Focusing on managing debt in your 20s can help you start to develop good money management habits now. For instance, you may want to start by deciding which debt makes the most sense to eliminate first and then create a plan for paying it off.

A monthly budget that includes payments towards the debt you owe and a bill calendar could also help you stay organized. Putting a plan in place now may help you keep debt in check before it has a chance to grow beyond your means.

Building Credit

If you're new to personal finances, you may not realize how building good credit when you're young can help affect your financial future. Your credit score can influence things like your qualifications to lease a car, take out a mortgage or open new lines of credit.

Once again, much of developing good credit can go back to budgeting. Factoring the balances on your credit card and utilities, as well as their payment due dates, into your budget could lead to sustainable credit-building habits.

Saving for Retirement

Although retirement might seem far away right now, that doesn't mean you can't get a jump on it. The sooner you start saving, the more potential you have to see the benefits of compounding interest. Compound interest means that you earn interest on interest, and the more time you have to put money in accounts with compound interest, the more growth potential.

Your company might offer an employer-sponsored 401(k) that you can contribute to now, if you are interested in starting those savings. If your employer does not offer retirement benefits, or you don't like those they do offer, you could consider opening an individual retirement account (IRA). Money you put toward retirement today could help you in the future.

The Bottom Line

It's never too early to start drawing a financial road map that suits you. Mastering personal finance in your 20s could help you better understand your own goals and start to build a plan to get there.

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Save, Invest, Grow Your Wealth!

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