It’s empowering to own who you are, go after your dreams, and make your own money. And once you’re in your 20s, financial freedom and independence are more tangible than ever. Being financially independent doesn’t just mean making your own money, though. In fact, there are so many elements that go into it, and if you’re in your 20s, now’s the time to learn exactly what they are. Keep on reading to learn the 10 pieces of financial advice every woman in their 20s needs to hear and set yourself up for the future and financial independence.
1. Start planning for the future
Taking the time to build an investment portfolio and retirement fund is crucial for financial independence. Down the line, you’ll be able to truly enjoy life and experience financial freedom because of the smart choices you made when you were young. Investing for the future means investing in yourself, and the earlier you start, the more time your money has to grow.
If you’re looking to build an investment portfolio, Public and Ellevest are great choices for beginners. Public offers an in-app social network where investors can buy fractional shares of stocks and ETFs (exchange-traded funds, which are baskets of assets made to diversify investment portfolios) at a significantly lower price than other investing platforms, which is a good way to start small while learning about investing. Ellevest is built by women for women and helps you create a diverse investment portfolio that matches your personality and goals for the future.
In terms of retirement, there are quite a few choices available. If you’re employed, be sure to talk to your employer about any employer-sponsored retirement plans, how you can start contributing to it now from your paycheck, and whether or not they will match your contributions up to a certain threshold. If your employer doesn’t offer retirement plans or you’re self-employed, two options to consider looking into are either a traditional IRA or Roth IRA. If you make a lot of money, want to be able to write-off your contributions, and have tax-deferred earnings—earned money that’s tax-free until it’s withdrawn—a traditional IRA may be the better option for you. A Roth IRA might work better for you if you’re single and make under $144k/year or under $214k if you’re married and filing jointly and want to make tax-free withdrawals in your retirement. These aren’t the only two options available, which is why it’s imperative that you research everything thoroughly to find which plan works best for you.
2. Build an emergency fund
If you want financial independence, it’s important that you have the funds to fall back on and rely on yourself at the end of the day. This is where having an emergency fund is essential. Since you’re likely just starting out in your career and working your way up in your 20s, the amount of money you can set aside right now will probably be on the smaller side after paying for your expenses. No matter how big or small the amount is, though, add it to your emergency fund; every little bit counts. Getting in the habit of setting aside money now is only going to help you save more as you climb the ladder in your career and start earning more.
3. Actively work toward paying off debt
If you currently have any debt, it’s time to make a plan and actively take steps to become debt-free. Doing this now will prevent your debt from spiraling out of control. Take a step back and figure out what you owe—including interest—and by when. Once you’ve done that, calculate the cost of your living expenses from your income to get an idea of the amount of money you have to work with to pay off your debt, put into an emergency fund, and invest.
If the amount you have to pay off feels astronomical and overwhelming, consider using the snowball method. This method has you pay off debt in order of the amount you owe, from smallest to largest. You could also consider allocating a certain percentage of your income to go toward paying off debt, which can be helpful if you’re focused on saving, investing, and becoming debt-free. Another thing to look into would be consolidating your debt—combining your existing debt into one lump sum—as a way to potentially lower interest rates on what you owe and help prevent you from missing multiple payments. Take the time to learn about your options, and be open to experimenting in order to find the approach that suits you.
4. Set two types of money goals
Goals are an essential part of life because they give us something to strive for and help make our dreams a reality. In your 20s, you should set two types of money goals: a long-term money goal and short-term money goals. Your short-term money goals break down your bigger goal and are the baby steps needed in order to get to your long-term goal. Both of these types of goals can be anything you want—no number is too big or too small. Find your long-term money goal and write it down on a piece of paper, then figure out the steps needed to get there. These will be your short-term money goals.
For example, if your long-term money goal is to have $50k saved up by the time you’re 30, you can set up smaller numbers—$5k, $15k, $25k, $35k, etc.—as milestones to strive for and hit throughout your 20s until you reach your goal of $50k. These smaller numbers will be your short-term money goals, and by striving for them, you’ll inadvertently be forced to make smarter financial decisions and be more conscious of your spending.
5. Create and master a budgeting plan
There’s no better time than your 20s to create and master a budgeting plan you can stick to and follow. You’ll get better at both saving and spending money a lot sooner, and developing healthy spending habits now is key to financial independence.
Budgeting plans are a dime a dozen, and it can be tricky to nail down the exact one that works for you. Some people might find The Envelope System to be particularly helpful, while others may find having a written-out plan in a notebook or on a spreadsheet is easier to follow. There are also tons of budgeting apps, like Goodbudget or Mint, that you can download and use to diligently track your finances. Be open to trying different approaches or mixing and matching various ones to find the system that works best for your lifestyle and makes budgeting easy.
6. Save as much as you can now
As exciting as life can be when you’re in your 20s, now is not the time to be buying flashy things. In fact, your 20s is the time you should be saving as much as you can. This means not doing things such as rushing out and getting the newest iPhone if your current one’s working fine, not splurging on a new car if yours isn’t broken, or cooking at home more often instead of ordering takeout. You should also look at your “lifestyle” expenses—cable/streaming services, gym memberships, hair and nail care, Starbucks runs, etc.—and cut back on or consolidate in any areas you can. Practicing smart spending now is only going to help your future self and maximize your financial productivity.
7. Be mindful of what you’re splurging on
There’s an episode of Sex and the City in which Carrie comes to the realization that she’s spent $40,000 on shoes but has “nowhere to live.” The revelation comes after her ex, Aiden, moves out of her apartment post-breakup and tells her that she can buy it back from him (which she can’t do because she’s spent $40k on shoes). This is a cautionary tale for women of all ages everywhere but especially for women in their 20s who are just starting out and trying to get their finances in check. Sure, Carrie had a very impressive shoe collection and she always looked good, but when push came to shove, the shoes didn’t help her. She had chosen to spend her money on things that didn’t hold any real value or serve her well financially over time.
Of course, you are absolutely entitled to treat yourself every once in a while, but it’s important that you’re mindful of what you’re splurging on. If you’re going to save up for a big purchase, consider saving up for something like a down payment on a home or piece of property. Homes and property are considered assets because they appreciate in value over time so, down the line, should you want to sell, you’ll be able to make back your initial investment and then some. Whenever you’re making a large purchase, always take the time to research what you’re really spending your money on and whether or not the item will appreciate or depreciate in value over time. Doing this will serve you well financially for the future.
8. Avoid making minimum credit card payments
Minimum credit card payments are akin to the kiss of death—they force you into forever playing a game of catch-up while your bill continues to rise and you incur more debt because whatever isn’t paid off will roll into the next month and be applied with interest. This is a detrimental mistake to make when you’re young and an even worse habit to get into. Doing this in your 20s will only put you at a disadvantage during a time in which you should be trying to get ahead.
If you tend to overuse your credit card, try setting up auto-payments for living expenses to be charged on your card and pay for “fun” expenses using either cash or a debit card. Another option you could look into would be getting a credit card with a lower spending limit that better fits into your budgeting plan. Capital One offers a lot of low-limit credit cards and cards with cash back rewards. Cash back rewards are rewards that are given back to you at a small percentage from certain purchases and can be used to pay off or reduce a credit card balance of your choosing. Although the percentage is usually small, the idea is that over time, your rewards will accumulate to a point where you can use them to pay off your entire bill for the month.
9. Know where your money goes
You could make all the money in the world, but it is futile if you don’t know where any of it goes. Keeping track of finances is part of financial wellness, and it’s a habit you should start practicing in your 20s. Knowing where your money goes by tracking your income and expenses can help you make better financial decisions and spend more strategically. Plus, doing this can help you become a master budgeter. Much like budgeting, you can track your money through spreadsheets or templates, apps, or by hand.
10. Develop a healthy relationship with money
A healthy relationship with money is key to manifesting financial success and giving yourself the financial freedom you deserve. Developing a healthy relationship with money in your 20s will increase your awareness of it and make you more mindful of how you spend it, which will help you make better financial choices overall. Plus, doing this earlier in life will also help prevent you from potentially making major money mistakes.
Before you can develop a healthy relationship with money, identify your relationship with it. Do you think the relationship is currently healthy or unhealthy? Look at your spending habits and behavioral patterns with money; think about how the topic makes you feel and how the adults in your life handled and discussed it when you were growing up. Have you adopted or rebelled from the teachings, and if so, in which ways? What do you think your behavioral patterns with money mean? Perhaps your poor budgeting skills are a subconscious way to get rid of money as quickly as possible because you were taught to fear it growing up. Maybe you were fortunate enough and didn’t struggle financially when you were young and now spend money faster than you can make it.
The good news is that everyone is capable of developing a healthy relationship with money, regardless of their upbringing or current financial status. Your 20s is the perfect time to commit to making peace with money and overwrite any behaviors or notions you have around the subject. The sooner you do this, the sooner you can start making true financial independence happen in your life.