20 Smart Money Habits to Develop in Your 20s

For those looking back at our 20s through the experienced lens of midlife, most of us remember our first “real” jobs, responsibilities like having our own apartment and car insurance, and an uncertain future. We might also look back at fond memories, happy hours, close friendships and – if we were lucky – a few good relationships.

And, amidst it all, we probably made our fair share of money mistakes. Past generations didn’t talk about money with our parents, and it led to a huge lack of financial education. We also didn’t have websites like this one to guide us on our financial journey.

Today’s 20-somethings, although they might struggle with student loan debt and home prices that might make homeownership seem impossible, have vast resources to help them make better financial decisions to create a brighter financial future.

Here are 20 things I wish I knew about managing money in my 20s.

young people having fun

1. Understand Your Income and Expenses

The first step towards financial independence is understanding your income and expenses. In your 20s, income usually comes from full-time employment, part-time jobs, gig work – or a combination of all three. It’s crucial to know exactly how much money you make monthly after deductions like taxes and health insurance – your take home pay.

If you’re an independent contractor, you’ll need to take out money to pay your own taxes, which can amount to roughly one-third of your income.

Similarly, understanding where your money goes is essential. Rent, groceries, utilities, car repairs, and student loan payments are probably your main expenses, but you also want to factor in variable costs like entertainment and dining out. Scrutinizing your spending habits can reveal potential savings areas and keep your cash flow in check.

2. Develop Good Budgeting Habits

Armed with knowledge of your income and expenses, you can develop good budgeting habits. A well-crafted budget is a cornerstone of effective financial planning. It helps manage your finances and prepares you for future financial goals. You can use various apps or traditional spreadsheets to monitor your spending and adjust as needed.

Review and modify your budget as needed to ensure you have enough money for necessities, savings, and some leisure activities, making your 20s more enjoyable.

Check out the best budgeting apps of 2024.

3. Start Saving for an Emergency Fund

An emergency fund is a safety net that provides financial support during unexpected expenses. Whether it’s sudden car repairs, medical bills, or job loss, having money saved provides a sense of financial security.

Automating your savings can simplify the process. Consider setting up a direct deposit or an automatic transfer from your checking account into your savings account. Aim for at least three to six months of living expenses in your emergency fund.

4. Prioritize High-Interest Debt

In your 20s, you may have to manage different types of debt, such as credit card debt, student loans, auto loans, or personal loans. High-interest debt can accumulate quickly and impact your credit score negatively.

Adopt strategies like the debt snowball method, where you pay off smaller debts first to gain momentum. This habit not only helps you get out of debt but also improves your credit history.

5. Build a Strong Credit History

Building a strong credit history is a smart money habit to develop in your 20s. Credit card companies, lenders, landlords, and even some employers review your credit history to evaluate your financial reliability.

Maintaining a low credit card balance, paying bills on time, and not borrowing more than you need are some healthy financial habits that can build a good credit score. Regularly checking your credit reports can help ensure they reflect your financial behavior accurately.

New to credit? Learn how to build credit from scratch.

6. Begin Retirement Savings Early

One of the smartest money moves you can make in your 20s is to start saving for retirement. Utilizing a retirement account, especially one with employer-matching, is an excellent way to harness the power of compound interest. The earlier you start saving, the more time your money has to grow.

Even if you don’t have a lot of extra money right now, you should still start putting something aside each month. Even small amounts can add up over time and make a big difference in the long run.

7. Start Investing

Investing can seem intimidating, but it’s a great way to grow your wealth over the long term. With a multitude of options available, from stocks and bonds to real estate and mutual funds, find what fits your risk tolerance and investment objectives.

It’s wise to seek investment advice from a certified financial advisor who can guide you through the process. Remember, investing is about long-term gains, not get-rich-quick schemes.

Here are some tips on how to get started investing.

8. Ensure You Have Appropriate Insurance

Your 20s is a great time to evaluate your insurance needs. Health insurance can protect you from overwhelming medical bills, auto insurance is vital if you own a car, and renters insurance can protect your personal property in your apartment. Having appropriate insurance provides a safety net, ensuring your savings are not drained due to unexpected incidents. You might also want to consider a term-life or whole life insurance plan now, since rates are lower when you are younger.

9. Utilize Free Money

It might sound too good to be true, but opportunities do exist. If your employer offers a retirement account match through a 401(k) or similar program, it’s essentially free money added to your retirement savings. Tax refunds, cash back from credit card companies, or sign-up bonuses are other examples of income that you can divert to your savings or investments.

10. Take Advantage of Employer Benefits

In addition to retirement matching, many employers offer other benefits that can save you money. These could include health and life insurance, disability coverage, or flexible spending accounts for health or childcare costs. Using these benefits to their fullest extent is a smart financial choice that can add up to significant savings – and greater peace of mind.

11. Minimize Lifestyle Inflation

As your income increases, it can be tempting to upgrade your lifestyle proportionally. However, keeping lifestyle inflation in check is an important financial habit. Instead of spending more, focus on using the extra income to boost your bank account, pay down debt faster, or invest more for your future.

12. Set Clear Financial Goals

Having clear financial goals provides direction for your money. Your goals might include saving for a down payment on a house, paying off your student loans by a certain date, or reaching a certain amount in your retirement accounts. By setting clear, measurable goals, you can track your progress and stay motivated.

13. Automate Your Finances

Automation can be a powerful tool in managing your money. Automated transfers to your savings account can help ensure you’re consistently saving money, while automated bill payments can help avoid late fees and protect your credit score. Set up these automatic processes to reduce financial stress, save time, and create good life-long habits.

14. Learn to Negotiate

Whether it’s negotiating your salary, your rent, or the interest rate on your credit card, this skill can save you a significant amount of money. It’s worth investing some time to learn negotiation strategies and techniques.

See also: How to Negotiate Your Bills to Save Money

15. Keep an Eye on Your Net Worth

Your net worth, which is the total of your assets minus your liabilities, is a good overall measure of your financial health. Regularly track your net worth to stay focused on your financial goals and see your progress over time.

16. Start a Side Hustle

If you have a skill or passion that you can monetize, starting a side hustle can help boost your income. Whether saving for a big purchase, paying down debt, or investing for retirement, earning more will help you reach your goals faster.

17. Get Comfortable with Taxes

Understanding how taxes work can save you money and prevent potential legal issues. If you’re self-employed or have multiple income streams, it’s especially important to understand your tax obligations. Consider using tax software or seeking advice from a tax professional to ensure you’re handling your taxes correctly.

18. Establish a Regular Financial Check-in

Regularly checking in on your finances can help you stay on top of your money and catch potential issues early. This might include reviewing your budget, tracking your spending, reviewing your credit report from each of the three major credit bureaus, and assessing your progress in achieving financial independence.

19. Continue to Educate Yourself on Personal Finance

Financial literacy is a lifelong journey. In the digital age, countless resources, including blogs, podcasts, and online courses, are available at your fingertips. Keep educating yourself about building credit, managing debt, investing, and building your savings. Knowledge is the key to financial success, and learning about these personal finance topics can help you make informed decisions.

20. Be Generous

Even while you’re focusing on your own financial future, it’s important to remember to give back. Regular charitable giving, whether it’s to causes you care about, your local community, or individuals in need, can bring a lot of personal fulfillment and make a positive impact in the world.


Building smart money habits in your 20s can provide a solid foundation for the rest of your financial life. From understanding and leveraging employer benefits, minimizing lifestyle inflation, setting goals, and automating your finances, each step you take brings you closer to financial freedom. Your 20s are a pivotal time in your life; make the most of them by making these smart money moves.

Dawn Allcot
Meet the author

Dawn Allot is a personal finance writer and content marketing expert specializing in finance, travel, real estate, and technology. In addition to her work at Crediful, Dawn regularly writes for Bankrate, GoBankingRates, and The Balance.