Let's talk about how to build wealth in your 20s! When you’re in yours 20s, it might seem like you’ll never reach your financial goals. After all, the average Gen Z consumer under age 24 has $10,942 worth of debt. And that just increases as you get older, as the average Millennial consumer (ages 25 to 40) has $27,251 worth of debt. But that doesn’t mean you can’t start building wealth!
As long as you make the right choices when it comes to money, you can easily start accumulating a nest egg for a rainy day – not to mention build a comfortable base for your retirement. Here are some tips for how to build wealth in your 20s that will last a lifetime.
1. Create a budget
It will be extremely hard for you to build wealth in your 20s without creating a budget. We talk about this a lot here at Clever Girl Finance, but it bears repeating. There are a few different methods you can try. The cash system means you pay for everything in cash, which should help you spend less.
Or, you can try limiting your purchases to a certain percentage of your income. As an example, you might put 50% of your income toward your essential needs, 30% toward personal purchases, and 20% toward savings or debt repayment.
Our main tip for budgeting? Once you define your budget, stick to it. Making too many exceptions kind of defeats the purpose. Another thing – always leave a little wiggle room.
Having too strict of a budget is just setting yourself up for failure. Still stuck on where to get started? Use this budget example so you can get a better idea of how to craft your own.
2. Contribute to your retirement fund
When it comes to how to build wealth in your 20s, saving for retirement is extremely important. Now’s a great time to start saving for retirement even if it seems a long way off! Unfortunately, many 20-somethings aren’t heeding this advice.
Only 39% of people in their 20s are saving for retirement, which could put them at risk for not having enough to rely on once they stop working.
To get started, the main things you’ll want to do are open an IRA and contribute to your 401k if you have one. An IRA lets you contribute $6,000 a year, so if possible, you’ll want to max that out. As for your 401k, you can invest as much as you want. If you have a company match, you’ll definitely want to max that out because it’s free money.
Wherever you put your money, make sure your investments are focused on long-term rather than short-term gain. That way, you’ll have time to earn more over the years so it’s ready for when you really need it.
3. Focus on increasing your income
If you work hard in your 20s, you may be able to take it easier once you get older. Rather than putting your extra time toward obsessing over the best investment returns, we recommend making time to focus on earning more too. You can do this in a few ways.
Another idea is to find a stream of passive income. This could be something fun, like publishing an e-book, building a niche affiliate website, or even selling stock photos. You may not earn a ton at first, but eventually, those profits will add up.
4. Cut back on your living expenses
Do you really need to buy that latest piece of technology or splurge on fancy groceries? Chances are, probably not. See how much you can cut back on your living expenses to save as much as possible. You might cook at home more, carpool to work, or even get rid of cable. You may be able to save as much as $360 a year if you skip out on an expensive TV subscription.
If you’re already living pretty barebones, think of other things you can do, like reducing your energy bills or inviting a roommate into your home. Even small changes can leave you with more dough in your pocket.
5. Find a financial mentor
Being financially sound is a lot better when you have guidance! Obviously, we’re here to help as much as we can, especially with our completely free personal finance courses. But see if you can find a mentor who knows your situation and can provide personalized advice.
The goal is to find someone more experienced than you in the ways of money. That way, they’ll have sound advice you can rely on because they’ve been in your shoes.
We know what it’s like to be in your 20s – it’s often hard to see the bigger picture. A mentor or role model will be there to help you do just that. Especially if this is the first time you’ve really had to manage your own finances.
6. Pay off your debts
To make money, you need to get out of debt. Debt can snowball and nullify any of your gains, so it should be a priority – especially credit card debt. The average interest rate for a credit card is 14.75%, but it’s possible to have interest rates in the 20 or 30% range. Yikes!
We know getting out of debt can be hard if you’re on a low income. Our best tips are to always make the minimum payments, put any extra money you have toward your principal, and see if you can consolidate your debt into a lower interest rate. That said, you might not want to pay off student loan debt right away if you’re getting better returns from investing (but always make the minimum payments!).
7. Focus on improving yourself
Self-improvement should always be a big goal for you. Follow the opportunities that come your way and acquire as many skills and knowledge as you can. You never know where this will lead you!
While taking a class on marketing, you might be able to network with an employer for a higher-paid position. Or maybe those Spanish lessons you took will help you advance in your current role. Never stop learning, and always work toward accomplishing your goals.
That said, improving yourself should lead to both personal and professional development. And that means more money in your pocket.
8. Stay passionate and driven
This is our most important tip when it comes to how to build wealth in your 20s! Building wealth isn’t easy – it will require constant vigilance. Sure, a slipup here or there won’t cause any permanent harm. But before you know it, these once-in-a-while slipups will become a regular thing, and then… you’ll have to start from square one.
Stay on track with your goals – it may help to surround yourself with friends in the same mindset. The people in your circle have a big impact on your finances, so try to make connections with others who are also interested in building wealth.
Another way to maintain your self-discipline? Always remind yourself why you’re making wealth a priority. Try visualizing your future, successful self instead of dwelling on the hurdles you need to get there.
How to build wealth in your 20s that will last a lifetime
Now that you know how to build wealth in your 20s, you can create a stable financial base that can lead to a lifestyle of monetary happiness. That said, you are still in your 20s, so remember to have fun. You can still reward yourself without blowing your budget.