Building your wealth in your 20s can set you up for a lifetime of financial success. The earlier you start establishing good financial habits, the sooner you will acquire financial freedom.
In this article, I am going to give you some great tips that can show you how to build wealth in your 20s, but if you’re in your 30s, 40s, or 50s – this is still applicable for you.
It’s foundational knowledge and steps that can help you get on the right track, and change your relationship with money.
It doesn’t matter how old you are, you can change your behavior with money to build wealth.
Furthermore, it does not matter what your path has been – whether you grew up poor, or rich, or with a stable relationship with money, or a very erratic relationship with money, you can change.
Keep in mind that change does not happen overnight, so don’t be impatient. Even if you only implement one of the tips that I give you, that will have a domino effect on your life, and it will also impact your psyche.
The only reason a lot of people do not have financial security is that they do not understand how to handle money.
They may have excellent income, a reasonable rent, or mortgage, and still not manage to save their hard-earned money.
That’s because they have a poor relationship with money, and have not implemented strict financial structures that are set up for their own success.
Long-term wealth, over short time pleasure, that’s the aim. That does not mean you cannot treat yourself, or indulge, it just means you’re going to take a more mindful approach to your finances.
It doesn’t really matter what your budget is, either. Now, don’t get me wrong, it’s much easier to begin saving when you have a higher salary, but you can implement financial planning strategies that mean for the majority of people, you will begin to save money.
With that said, let’s dive into some financial concepts and strategies that can lead to you building wealth, in your 20s.
Wealth In Your 20s
If you want to build wealth, then you’re going to need to cut down on your expenses.
When you’re young, it can seem appealing to spend your money on a new car, the latest trends, and the latest technology.
While it’s perfectly reasonable to save some money for personal indulgences, it’s vital that you learn how to restrict and budget.
If you’re throwing money away every month on excess items, you need to reconsider your priorities.
People who are building wealth do not buy an excessive amount of items, they live frugally because they understand that the majority of their income should either be invested or saved. They’re playing the long game, and you need to start getting into that mindset.
So, what do I mean when I say you need to cut down on your living expenses? The best way to control expenses is to create a budget.
Create A Budget
First, you’re going to want to examine your bank statements. Calculate how much money you are spending on items each week, and each month.
This could be anything from bills, clothing, technology, dinners, subscriptions.
Next, create different categories for your budget. The first category will be necessities, such as your electric bill, phone bill, and food.
The second will be personal items, such as clothing and technology. The third one will be entertainment, such as dinners, theater, and so forth.
Finally, you’ll have the savings category.
Now, you’re going to want to make sure that your income exceeds your expenses, by a healthy margin (15-20%).
Make Sure You Have Affordable Housing
This is one of the biggest expenses that young people have, so it’s something that needs to be seriously considered when you begin building wealth.
It doesn’t matter if your salary is $50k or $250k, unless you’re able to cover your rent or mortgage, you’ll continue to struggle financially.
Housing is the biggest expense that most people have. If you want to save money on this, then there are a variety of things that you can do.
First, look for an apartment that costs less than you can afford. Second, you can also try and reduce the amount of money that you’re spending on rent by finding a roommate.
This could be a good friend, someone who works with you, or even an acquaintance. What matters is that your respective incomes combine to cover the costs of your rent or mortgage.
If you’re really ambitious, you might want to try living rent-free.
Save Money On Personal Items And Entertainment
When it comes to personal items and entertainment, you’re going to want to aim to reduce the amount spent in each category per month, by half if possible. If you can reduce the amount even more, that’s great, but everyone is different.
If that seems daunting, you could reduce personal expenses by twenty percent, and entertainment by half, if that makes it easier, or vise versa.
You might find that due to your low budget, you do not spend much money on entertainment, or personal indulgences each month. In fact, you might find that you cannot reduce them further. Do not fret, below we will look at other ways you can cut down on your expenses.
Now, necessities are a little harder to cut down on, because it depends on personal circumstances. Here are some things to consider, and reflect on:
- Can I get my gas, energy, or electric at a cheaper rate, from a different company? Is there any switch over fees, that could make it not worth it? How much money could I save a year on energy bills by doing this?
- Can I get a cheaper phone contract? Do I need this amount of data or my next upgrade? Can I stick with this phone, and when the contract expires, get a cheaper data contract?
- Can I carpool to, or from, work? Could I, instead, get the bus? Would either of those be cheaper, or even worth my time?
- Can I get my Wi-Fi at a cheaper rate? How much money would I save if I switched companies?
Part of living frugally is knowing how to get the best deal, at the best rate. One reason people do not analyze this data is because it takes time, and effort.
The hang-up is, these are exactly the actions you need to start implementing in your 20s to start building wealth.
If all you manage to save per year is an extra hundred dollars, that is still an extra hundred dollars. If you put that money in investment accounts, you could end up with double, or triple that amount.
Now, if you keep that mindset through your life, you will keep accumulating money, and you will keep either saving or investing it. This is how you generate and build wealth, do not overlook such basic, but important steps.
The money that you save here is vital. It can either be saved, added to an emergency fund, or invested. Either way, you are giving yourself a strong financial foundation and beginning to build wealth.
Pay Off Your Debt
When it comes to making money, the best way is by getting out of debt. If you have any credit card or student debt and they’re not being paid on time then these can snowball into much worse problems over time as interest rates will start adding up quickly!
The average rate for an unsecured line of credit currently stands at over 14% but some cards may charge 20% or more. Ouch!!
It’s not always easy to handle your debt if you’re on a low income. But that doesn’t mean there isn’t anything you can do! Your first step should be making the minimum payments and putting any extra money toward the principal.
If you have good credit and are employed, refinancing your student loans may be an option for getting a better interest rate.
Don’t Buy A New Car
It’s easy to get caught up in the excitement of buying your dream car, but it might be worth considering what you’re really giving up when financing an expensive purchase with borrowed money.
I know, I know–we all need to drive, and new cars are fun to drive. But if you really want one, save your money for it! Most new cars will lose close to 20% of their value in the first year alone.
It’s not just about the cost you’re paying now–you’re also laying the groundwork for a high monthly payment if you’re financing this purchase over five years or longer.
Start An Emergency Fund
An emergency fund is often overlooked because it’s not as exciting as investing.
Putting away money, specifically for unexpected expenses, does not feel as wealth-building as investing does. This is not a mentality you should have.
You also need to save money, and you need an emergency fund.
Your emergency savings account is your lifeboat. It’s what you can rely on if the worst happens, and you end up ill, you have an accident, or you are fired from your job.
It saves you from going into credit card debt, having to borrow money, or taking money out of your general savings account. Likewise, it means even when the worst happens, you’re still going to be OK.
Generally speaking, you should have three to six months’ worth of living expenses saved in your bank account.
With that said, even if you only manage to save up one month’s worth of expenses, this is a good step and is vital when it comes to building wealth.
This is financial literacy, this is what it means to be smart with money, and it takes this attitude and forward-thinking to build wealth.
Contribute To A Retirement Savings
A retirement savings is a great way to build wealth in your 20s and 30s, and it’s also a great way to make the most of your money.
Contributing to an investment account is often overlooked – many people feel as though they do not have enough money to spare for such things, or that their income is still low, and therefore it is not worth investing in a retirement fund.
A recent study found that only 39% of people in their 20s are saving for retirement, which could put them at risk.
It’s going to be difficult for anyone who does not have a retirement fund or pension plan to live comfortably in their later years. You want to make sure that this is one of the foundations of your wealth, and you want to start investing as soon as possible.
401(k) vs. IRA: What’s the Difference?
When it comes to retirement funds, you need to be aware of the difference between a 401K and an IRA plan. The primary difference between an IRA and 401 k has to do with how they’re funded. 401(k)s are often established by employers and an Individual Retirement Account (IRA) you can establish on your own.
401ks are great because they usually offer matching contributions from employers. If you have a company match, don’t forget to maximize this free money!
A 401(k) will have different funds that you can choose to put your money into, choosing wisely can make a big difference in how fast you accumulate wealth. If you’re not sure what to pick, consult with a financial advisor. If you prefer to do it yourself you can find more information in Tony Robbin’s book, Money, Master The Game.
One of the best ways to prepare for your future is by setting up long-term investments that provide a stable stream of income. The more time you have, the easier it will be to accumulate wealth.
This is something that should be built into your expenses, because not only does it help you build wealth, but the earlier that you start saving, the more money that will accumulate over time.
Maximize Your Earning Potential
If you want to build wealth, then you are going to need to start maximizing your earning potential.
This means you are going to need to reflect on aspects of your life and make progressive changes. It’s all about making good career choices or working out how to make good career choices, that will lead to more money in your pocket.
First, you should reflect on your chosen field. Are you happy with your choice? What are your projected salary outlooks? What is the average salary in your aspirational field? Is it low, or high?
If your projections are low, then you may want to reconsider whether your chosen field is right for you.
Is there another job, perhaps similar, that would lead to a better salary, and better opportunities? Do you need to change careers completely? Will you be happy in this role? There is a lot to consider, but no matter your age, you should be continuously looking for growth, and assessing what future growth opportunities look like.
If they are underwhelming, change the course of your career.
Ask For A Raise
With that said, are you deserving of a raise?
Do you have experience and skills that are not being utilized, or are you being underpaid for your job? Try to negotiate a raise with your boss, or explain that you are looking for career advancement because you are passionate about growing your career within this field, and company.
The worst that can happen is they decline. As long as you are confident and polite, they will remember that you have drive, which is an incredibly important trait.
This means you could be considered for future opportunities.
Set Financial Goals
Setting goals is one of the most important things you can do to make sure that your wealth management plan works. The more specific your goals are, the easier it will be for you to reach them.
You should set financial goals based on what you want to achieve in life and how much money it will take. Make sure that they’re realistic and that they’re specific enough to help you plan out your life.
It’s important that you set long-term and short-term goals, as well as a monthly budget to help you accomplish them. If you’re really struggling with this process here are some examples of good financial goals:
- Getting out of debt.
- Saving for retirement.
- Funding an emergency savings.
- Purchasing a home.
- Planning a vacation.
- Build good credit.
- Making money.
- Starting a small business.
- Creating financial security.
Change Your Mindset About Money
One of the biggest differences between those who accumulate wealth and those who don’t is that wealthy people always think about how they can make money.
The more you begin to think like a rich person, the easier it will be for you to build wealth.
You may not become a millionaire overnight–but if you keep reading and learning, you will begin to see the world differently. There are so many opportunities out there waiting for those who recognize them and take advantage of them.
The more money that you make–and the more wealth you accumulate–the easier it is for you to turn around and give back to your community or help those less fortunate than yourself.
You will begin to see the world in a different way, and you will feel better about yourself. A good place to start is with books or videos by Marisa Peer. I have read her book “I Am Enough” and watched her video “Fix Your Money Mindset Today.” I highly recommend both.
Educate Yourself About Money
You may start earning a steady income in your 20s, but don’t forget that this is just the beginning of your wealth-building journey.
You can’t accumulate wealth if you have no idea what’s going on with your finances. There are plenty of programs out there that can help teach you about money management after you enter the workforce.
The more educated you are, the more likely it is that you’ll make smart financial decisions moving forward. There are plenty of resources out there to get you started:
- Credit Score Basics
- Roth IRA vs IRA
- What is an annuity
- How to obtain a mortgage
- Investing for beginners
- What is compound interest
- Mutual Funds basics
How To Build Wealth In Your 20s And Beyond
Building wealth in your 20s can be done, but it takes some planning and education to get the ball rolling. Make sure that you set up retirement accounts if possible and teach yourself about money management early on.
Sometimes, you need to master the basics, because the basics are still a vital part of building wealth. You need to install a wealth-building mindset in yourself and carry this with you for the rest of your life.