The Most Important Money Lessons I Learned in My 20s

Now that I’m officially no longer in my 20s, I’ve spent a lot of time reflecting on what is often called “the defining decade.” I have a much younger sister, so sharing life experiences and lessons happens frequently (whether she wants the unsolicited opinions or not…). But one thing I really wish I focused on more in my early 20s is my finances. I started taking things really seriously a few years ago, but I honestly wish I started sooner. In your 20s, time is the most powerful tool you have (more on that later), so building good habits ASAP will pay off in spades in the future. Literally. I wanted to share some of the key lessons I learned around money in my 20s.

Some of this I figured out on my own, some of it I learned from my parents, and some I really wish I knew sooner. A quick disclaimer – I am NOT a licensed professional by any means, and I am still very much learning a lot myself! However, these are lessons that I think can apply to anyone in any life stage, especially in your 20s.

The Most Important Money Lessons I Learned in My 20s

+ Build a budget

Do this ideally as soon as you start making your own money. The single most important money lesson in your 20s is to spend less than you earn. Everything else you can pick up and learn over time, but the first thing to master is living below your means. If you’ve never made a budget before, start with the basics. There are a ton of easy budgeting frameworks available – I like something straightforward, like the 50/30/20 framework. This says to aim to spend 50% of your income on essentials (housing and groceries), 30% on discretionary (aka fun) things, and 20% savings.

If you don’t know where to begin, it helps to collect all of your expenses over the past three months to get an idea of roughly how much you spend every month. From there, you can divide your expenses in “bills” (rent, utilities, car payment, car insurance, etc.) and “flexible/fun spending” (everything else). It helps to use software like Mint if you need a little help visualizing your spending. From there, you can create set amounts to target for each monthly category, and monitor your spending to make sure you are following your budget. It’s okay if this takes time to figure out, or you go over a few categories in a month. The key is to find a budget that is sustainable and works for you!

+ Set goals

I’m a firm believer in setting goals. Not abstract ones like “the future” or “all the things,” but very concrete goals. (However, if abstract goals get you to save, they’re still a good thing!). I try to set SMART goals.

SMART stands for Specific, Measurable, Achievable, Relevant, Time-Bound. Essentially, be as specific and detailed as possible with your goals. It’s easy to dismiss this in your early 20s because it feels like you have all the time in the world before having to worry about things like buying a house, saving for a wedding, or having a baby. But trust me, all of them will happen sooner than you think, and you will probably have some level of sticker shock. Even if your goals are more near-term and “fun” (like buying a new handbag, or saving for a vacation to Europe), it still helps to set a specific amount you want to save by a certain time. It’s incredibly motivating to visualize what you are saving for (your “why”) and will help you keep your eyes on the prize.

+ Invest early and often

The magic word in personal finance is compounding. A dollar invested in your 20s is worth substantially more than a dollar invested in your 30s. Here’s an example from Investopedia: Let’s say you start investing in the market at $100 a month, and you average a positive return of 1% a month or 12% a year, compounded monthly over 40 years. Your friend, who is the same age, doesn’t begin investing until 30 years later, and invests $1,000 a month for 10 years, also averaging 1% a month or 12% a year, compounded monthly.

Who will have more money saved up in the end?

Your friend will have saved up around $230,000. Your retirement account will be a little over $1.17 million. Even though your friend was investing over 10 times as much as you toward the end, the power of compound interest makes your portfolio significantly bigger.

So even though it’s difficult to resist the urge to spend money on all the things in your early 20s, every dollar you set aside will compound. Your future self will thank you. Roth IRAs are your best friend – maxing out your Roth IRA every year, if you can, is one of the best things you can do for your financial future. If you don’t know what a Roth IRA is, it’s a type of retirement account that allows you to withdraw money tax-free upon retirement. As of 2021, you can save a maximum of $6,000 a year in a Roth IRA. This averages out to saving $500 per month. Even if you can’t manage this now, it’s a great goal to set for yourself.

+ Credit cards and debt don’t have to be scary

I grew up in a household where debt was basically a dirty word. On the one hand, this instilled in me from a very young age to live below my means, save a percentage of my income from every paycheck, and always pay my credit card in full. Thanks, mom and dad! On the other hand, I didn’t realize the benefits that can be unlocked by choosing the right credit cards and maximizing their rewards and points (more on this another day). I’ve seen some financial advice that recommends only paying for items in cash or with a debit card – but that means you’re leaving a lot of money on the table by not leveraging a rewards-based credit card.

Thanks to some of my travel credit cards, I’ve been able to travel for years for free essentially. It’s definitely not “basic” financial advice, but if you have the basics down and your spending under control, there’s no reason not to take advantage of credit card benefits.

+ Maximize your earnings

Living below your means and saving money is the most important thing when it comes to building a solid financial foundation, but maximizing your earnings can help you reach your goals even faster. If you work a corporate job, you can do this by taking on a side hustle (I started my blog as a side hustle and it’s paid off massively personally and professionally) or always shopping around. One of the best pieces of professional advice I ever received is to always be interviewing. This keeps your resume updated and your interviewing skills sharp. It also helps you to understand what your skills are worth in the market, and can guide you in making decisions around career moves. There’s nothing more rewarding than securing the bag yourself, and the sense of accomplishment that comes with it.

+ Talk about money!

Yes, talking about money may feel a little taboo at first, but it shouldn’t be. I’ve learned so much from friends and colleagues around budgeting systems, investment options, retirement accounts, and more. One thing I love about Gen Z and Tik Tok is how open they are to talking about money. It’s honestly insane to me that a lot of the financial basics are not taught in schools, and it takes most people years if not decades to get their finances in order. I really believe in normalizing financial literacy, and am so appreciative of the people in my life that have given advice and been open to having conversations.

What are the best pieces of money advice you’ve ever received?