10 Money Moves You Need to Make in Your 20s

Many 20-somethings start their grown-up years with a financial blank slate. Here’s how to make the most of it.

Better Investing


Welcome to our special series on Financial Planning for the Ages. Over the next two weeks, Money Talks News will tell you exactly what money moves you need to make in every decade of your working life.

We start with your 20s.

Those of you still fresh out of high school have an amazing opportunity. You may be starting your first job. You may have few bills. You may be so used to eating ramen noodles that it will be relatively painless to live lean and save a pile of cash if you’d like.

Even if you’ve made money mistakes, those may be relatively easy to reverse. After all, at most, you have maybe a couple of years of mistakes behind you. Compare that to a 40-year-old who could have 20 years of financial missteps to correct.

To make the most of your fresh start in life, here are 10 money moves you should make:

1. Start a retirement account, pronto!

I know, you’re just starting your first job; retirement isn’t even a blip on your radar screen. But it’ll never be easier to start saving than right now, and by putting money in an account in your 20s, you maximize the near magical phenomenon of compound interest. It’s something that has the potential to turn $100 deposits now into $1 million withdrawals later.

Your employer may offer you a 401(k), which is the easiest way to save. The money comes right out of your paycheck, so you’ll never miss it. Plus, many employers will match your contribution up to a certain percentage. That’s free money you don’t want to pass up.

If a 401(k) isn’t available through your job, start an IRA instead. Personally, I recommend a Roth IRA for reasons you can read about here.

2. Invest your money aggressively

Once you have your account open, you’ll probably have the opportunity to select where the money goes. Many 401(k)s default contributions into stable value funds, but you definitely don’t want your money there while you’re in your 20s.

Stable value funds are just what the name implies. The fund wants to keep your money safe (i.e. stable) so it makes use of very conservative investments. While you generally don’t have to worry about losing money, you won’t make much either. In my experience, stable funds average 1-2 percent growth per year.

By comparison, some emerging-market and high-risk funds earn a 15, 20 or even 30 percent returns each year. However, to get those huge returns, the money is put in investments that may be just as likely to go bust as to boom. That risk scares away older investors, and rightly so, but most 20-somethings can handle the risk. If your investments take a nose dive, you likely have another 40 years in the workforce to make up the loss.

Still, I don’t recommend pouring all your money in high-risk funds. You need to have a balance of investments. To find out how to achieve that, check out this video for Stacy Johnson’s advice on how to invest your 401(k) money.

3. Write down short-term, midterm and long-term goals

For this step, I’m not suggesting you need to map out your whole life. I’m not even saying you have to stick with your plans. You’re free to change them at any time.

However, having an idea of where you want to go in life will make it easier for you to make smart decisions with your money. Then, you won’t end up at 40, eyeing your friend’s summer home and feeling sorry for yourself that you can’t buy one, too.

With that in mind, write down how you envision yourself living in one year, five years, 10 years and 20 years. Your goals can be anything you want, but here are some topics to contemplate:

  • Marriage
  • Children
  • Travel
  • Career trajectory
  • Homeownership
  • Major purchases such as boats, cars, vacation property, etc.

4. Plan to pay cash for everything

Personally, I think being able to pay cash for everything is life-changing. Those of you who have been up to your eyeballs in debt and had the embarrassing experience of your card being declined know what I’m talking about.

Tell yourself you’ll be the type of person who always pays cash. That doesn’t mean you won’t ever take out a loan, and it doesn’t mean you won’t ever get a rewards credit card that you pay off each month. It does mean you might think a little longer and harder about going into debt and only do so if there are no other options.

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