Let’s talk about how to build wealth in your 20s! In your 20s, it might seem like you’ll never reach your financial goals. After all, according to a credit report by Experian, the average Gen Z consumer under age 24 has $10,942 worth of debt. And that increases as you age, 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 regarding money, you can easily start accumulating a nest egg for a rainy day – not to mention you can build a comfortable base for your retirement.
Here are some tips for how to build wealth in your 20s that will benefit you in your 30s and beyond!
1. Create a budget
Building wealth in your 20s is almost impossible without creating a budget. We know you’ve probably heard this often, but it bears repeating. Consider the following methods to try.
One of the simplest methods is the cash system, where you pay for everything in cash by allocating different amounts of money to certain parts of the budget.
For example, you take out $120 for eating out. Once you run out of cash, you no longer spend money on that area until your next paycheck.
It’s an easy way to spend less.
Or, you can limit your purchases to a certain percentage of your income. For 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 defeats the purpose.
And the best way to follow through is to leave a little wiggle room. Having too strict of a budget is setting yourself up for failure.
If you’re still stuck on where to start, remember that there are various budgets to choose from, and you can craft any budget to fit your needs.
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.
It's suggested that people in their 20s save around 20 percent of their income in order to have a sufficient amount for retirement.
To get started, you’ll want to open an Individual Retirement Account, an IRA, or contribute to your 401k if you have one. An IRA lets you contribute $6,500 a year, so you’ll want to max that out if possible.
You can also consider a Roth IRA, which allows you to contribute money after taxes. So when you withdraw, you won’t have to pay additional taxes.
As for your 401k, you can invest as much as you want. You’ll want to max that out if you work for a company that will match your investments. It's free money.
Wherever you put your money, make sure your investments focus 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 need it.
Being financially prepared for the future is the key to building wealth in your 20s.
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 spending extra time obsessing over the best investment returns, we recommend focusing on earning more.
You can create various income streams in a few ways:
A side hustle
One popular method is to start a side hustle. It’s a way to earn additional income while working a day job. Some examples are freelance writing or driving for Uber.
If you work hard, the earning potential here can be incredible and help you to build wealth in your 20s.
Another idea is to find a stream of passive income. For example, you could publish an e-book, build a niche affiliate website, or sell stock photos.
You may earn a little at first, but eventually, those profits will add up.
With two additional streams of income: a side hustle and a passive income, that’s extra money you can put toward your savings or retirement.
Start building assets
Assets are a term used to describe a tangible or intangible item of value owned by a company or an individual. Assets are important because they can be used to cover debts, make payments and be a source of income.
Some examples of assets include a vehicle, real estate, investments, intellectual property, a business, and much more. And the more assets you have, the more they contribute to a greater net worth.
4. Cut back on your living expenses
As you’re thinking about how to build wealth in your 20s, you have to be honest with yourself. Do you need to buy that latest technology or splurge on fancy groceries? Chances are, probably not.
See how much you can reduce 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 save as much as $360 a year if you skip out on an expensive TV subscription.
It can also be beneficial to reconsider your transportation options. Are you making monthly car payments on a new car? Consider buying a used car instead of leasing one.
Also, consider getting around through public transportation.
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 extra cash and contribute to building wealth in your 20s.
5. Find a financial mentor
Being financially sound is a lot better when you have guidance!
Educating yourself by reading personal finance literature and taking personal finance courses will help steer you on the right path. However, finding a mentor who knows your lifestyle will allow you to receive personalized advice.
A mentor can be a financial advisor; however, the goal is to find someone with more financial experience. 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 help you do that, especially if this is the first time you’ve had to manage your 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 challenging if you’re on a low income. Our best tips are to always make the minimum payments, put any extra money 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!).
Ultimately paying off your debts will increase your credit score and give you more purchasing power. Living a debt-free live life is how to build wealth in your 20s.
7. Build your savings
Between paying your bills and putting away for retirement, it may feel like you’re not using your money for anything fun. However, building savings is crucial to having an emergency fund.
Yes, being in your 20s, you may feel like nothing can go wrong. But that’s quite the contrary. Putting money in a savings account can help you if you get laid off or have an accident.
You can also build savings to help you quit your job and start your own business. Saving is a money habit that will benefit you in your 30s, 40s, and 50s.
Be smart about your savings and put money away in a high-yield savings account.
8. Focus on improving yourself
How to build wealth in your 20s also comes down to personal and professional development.
Self-improvement involves following the opportunities that come your way. It’s also about acquiring as many skills and knowledge as you can. You never know where this will lead you!
Make self-improvement a habit by constantly seeking new opportunities. For instance, while taking a class on marketing, you can network with an employer for a higher-paid position.
Or those Spanish lessons you took will help you advance in your current role. And that means more money in your pocket.
Never stop learning, and always work toward accomplishing your goals.
9. Stay passionate and driven
Staying driven 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. A slip up here or there won’t cause permanent harm.
But before you know it, these once-in-a-while slip-ups 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 significantly impact your finances, so try to connect 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.
Leverage these tips for how to build wealth in your 20s that will last a lifetime!
Remember that wealth isn’t just about making a lot of money. It’s about having more than enough money to cover all your wants and needs.
Focus on managing your money well, increasing your income, and putting money aside into savings and retirement funds.
When you know how to build wealth in your 20s, you can create a stable financial base that can lead to financial independence.
That said, you are still in your 20s, so remember to have fun. You can still reward yourself without blowing your budget!