What Money Moves Should You Make In Your 20s?

Our editor-in-chief makes cents of the best financial practices to start in your 20s

young woman thinking about saving for the future

The Balance/Alice Morgan

Dear Kristin,

What are some must-do things to do in your 20s to financially set yourself up for success? For some context, since I started working post-college and taking advantage of living at home, I set my 401(k) contributions to the max percentage. That helped exponentially grow my account with the goal to take a loan out of it and buy my first home in a couple of years.

Fast forward, post-COVID and unemployment, I am finally stable enough to purchase but have come to realize that I wish I had distributed my savings across different accounts instead of putting most of it in my 401(k). While I am still working to purchase my first home with a small chunk of personal savings, I have learned my lesson and want to start yesterday with easy ways to grow my savings now.

I know about getting into stocks, mutual funds, diversifying investments, but don't know how to get started or where to even look—it's very intimidating. My next financial goal is to pay off this 401(k) home loan and save for a family home in five to eight  years. Any tips on how to do that?


Anxious Saver

Dear Anxious,

I really love this question so I’m going to give you all the information I wish I had when I was in my 20s, in the hopes that someone else can avoid making the same mistakes I did.

What you should do in your 20s isn’t really too different from what you should do at other ages. But there are things that many people don’t start early enough, and it means they lose out on the advantage of starting sooner. The very first thing I would suggest is to learn how to make a budget . Use it to create financial goals , and give each dollar you earn a “job”—whether it’s to be used for savings, to go out, or to pay off student loan debt .

You’ve already nailed the next suggestion: saving for your retirement. Thanks to the power of compound interest , the earlier you start, the better. And it really isn’t too early to start saving for your retirement. In fact, it might even enable you to retire sooner .

But a retirement account isn’t the only kind of investing you should do. I would encourage every 20-something to also put some funds in an investment account that isn’t just for retirement, but instead could be used to grow your wealth, help buy a house, pay for a wedding, or pass along to your family. This should be thought of as investments you’re making for the long term (longer than a year), but with money you might want to access without penalty before retirement.

You also told me you’d like to keep more cash liquid, and that’s another tip I would give to 20-year-olds. Relish in the reality that most people your age are also just starting out financially, and resist the urge to recklessly spend your money if you have it. Instead, put those funds into savings (preferably a high-yield savings account ) so that it could be used to help you buy a home or a car. But in addition to those savings, you also need to start building up an emergency fund —typically three to six months of your living expenses. That way, you won’t have to tap into your savings to cover you in case of an emergency.

There are some things to not do in your 20s as well. Try to avoid racking up debt from things like credit cards, and pay off all your bills on time each month. This will help keep your credit score nice and strong for your later years when you’ll likely need it more for purchases like a car or a house.

You’ve asked how you can pay off your loan and start saving for your home. Now that you realize you’ve funded your 401(k) quite a bit, you might want to pull back on some of your investments, and redirect those funds to your savings or paying off debt. Use your budget to help you get there.

The last piece of advice I would give is to tell people to create separate “funds” for big life goals they might want to achieve, even if it doesn’t seem like it will happen anytime soon. You might not have a partner yet, but that doesn’t have to stop you from putting money aside for a wedding . And even if you currently have five roommates, you can still start saving for your dream home .


If you have questions about money, Kristin is here to help. Submit an anonymous question and she may answer it in a future column.

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  1. Wells Fargo. “ Saving For an Emergency .”

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