5 Smart Money Moves to Make in Your 20s

After landing your first “real” job and renting your first apartment without roommates, you’re finally starting to feel like an adult. However, despite the fact that you’re earning good money for the first time, you’re still not quite sure what to do with the funds coming in.

It’s normal to feel financially lost in your 20s, but the decisions you make now will affect your finances for years to come. Instead of letting your money sit idle or spending it as fast as it comes in, take these steps to set yourself up for a secure financial future.

Pay Off Student Loans

If you make minimum payments on your student loans, you may still be paying them off in two decades. But if you buckle down and live frugally for a few years, you can pay off your student loans faster and start using your money for something better than monthly payments.

Of course, paying off student loans shouldn’t come before building an emergency fund or saving for retirement. Instead of putting every penny toward student loans, pay yourself first then put as much of your discretionary budget as possible toward loan payments.

Avoid Credit Card Debt

Speaking of debt: While not all debt is bad debt, there’s one type you should avoid at all costs. With interest rates as high as 25 percent, credit card debt can be very hard to escape. While there’s nothing wrong with using credit cards for purchases, you should never spend money that you can’t afford to pay off that same month.

Save for a Down Payment

Renting is smart when you’re job hopping in your early 20s, but eventually, you may want to settle down and buy a house. When that day comes, you’ll need a lot of cash to cover the costs of buying a home; according to Redfin, down payments alone range from 3.5 to 20 percent of a home’s purchase price! Make sure you’re prepared by saving now. If you can come up with an extra $200 to $300 a month by cutting back on expenses or picking up a side gig (e.g., tutor, dog walker), you could be on the path to homeownership within a few years.

Once you have enough saved for a down payment, you’ll want to start shopping for loans. Many first-time home buyers take out FHA loans because of their flexible credit and down payment requirements, but a conventional mortgage may be your best option if you qualify. When you take out a conventional loan, you’ll have lower monthly payments and can eliminate the need to pay for private mortgage insurance.

Buy Life Insurance

By your late 20s, you may be thinking about really big changes, like starting a family. Before you do, invest in life insurance. Life insurance is a must when you have a spouse or children who rely on you because it provides your family with a financial cushion if you were to pass away. Life insurance can also pay for a funeral, but keep in mind that some policies won’t pay out fast enough to cover funeral costs. If you want to use life insurance for end-of-life expenses, make sure you understand how quickly benefits disburse. If it’s weeks or months rather than days, consider supplementing with a burial insurance policy that provides immediate access to funds.

Start Investing

These steps will help you prepare for the next 10 to 20 years, but what about your finances 30, 40, 50 years down the line? While it might feel too soon to think about old age and retirement, it’s never too early to start investing for the future. In fact, your 20s are the perfect time to start investing thanks to compound interest.

Before anything else, take advantage of your employer’s 401(k) match. A 401(k) match is free money, and you’d be remiss to pass it up. If you don’t have a 401(k) or want to invest beyond the employer match, open an IRA. A Roth IRA is ideal when you’re young and expect your income to grow, whereas Traditional IRAs are best-suited to peak earning years.

Most people park their retirement savings in mutual funds and forget about them, but taking a more active role in your investment portfolio could pay off. However, buying and selling stocks takes a lot of research and analysis. Before going this route, do your homework and arm yourself with the right tools to avoid expensive mistakes. 

Whatever you do, don’t wait until it’s too late to start thinking about your finances. By getting started in your 20s, you can take advantage of the most valuable asset of all: time. Take these steps now and watch your financial security grow.

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