financial decisions to make with money in your 20s

The 7 Best Financial Decisions to Make with Money in Your 20s

Let’s talk about MONEY! Specifically what to do with money. We all need it to live, we all want more, so how do we get it? We’re going to talk about 7 things you can do to build wealth in your twenties. These things are really important to do as early into your adulthood as possible, but you can absolutely turn your finances around at any time in life. You’re going to learn the best financial decisions to make with money in your 20s and beyond.

Before we get started I have to say that I am not a professional financial advisor or an expert. This advice is based off my own experience. You are responsible for your own financial choices.

Why is getting off on the right financial foot so important? What you do with your money now sets the stage for the rest of your life. It determines when you’re going to be able to retire, if you’re going to be able to afford your own house, if you’re going to be able to afford to have kids (because they are expensive as hell), and if you’re going to be able to enjoy your life or always be grinding for your next paycheck instead of enjoying your youth.

In this guide we’re going to cover:

How to develop the right wealth mindset.
The right way to set money goals.
What not to do with money.
Why you should open a savings account and how much to save.
The smart way to spend your money.
How to grow money you already have.
How to prepare for the future.

Disclaimer: This post may contain affiliate links. Using them gives me a small commission at no additional cost to you. You can read my full disclosure here.

What to do with money:

1. Your money mindset

We’ll get to the practical things you can do with money, but first we have to talk about the most vital part of building wealth, and that is your money mindset.

Your mindset about money, and really anything in life, is the most important factor in your wealth or lack thereof.

If you believe you can’t be trusted with money because you’ll just blow it, guess what that’s the reality you will create.

If you believe there is only a limited amount of money in the world, you’re only going to let yourself have a limited amount of money.

If you believe you’ll always be broke because the deck is stacked against you then that’s the excuse you’ll always have not to look for other opportunities. Don’t get me wrong, our society, particularly in the United States, is tilted to benefit the people who are already rich, but ordinary people have gotten ahead despite all the obstacles.

You have to trust and know that you can have just as much money as anyone else and that you deserve to be financially secure. No matter what your money situation has been in the past and no matter what your parents money situation was.

2. Set money goals

It’s important to have financial goals in your 20s. Having specific money goals is going to help guide your financial choices so much better than if you have a whatever attitude about money.

What do you want that requires money? When do you want it by? How much do you need to save each month, for how many months?

Be specific about your goal as well as about why you want it, your time line, and the steps you will take to achieve it.

Being vague about your goal is a form of self sabotage. If you aren’t taking the time to make a plan to achieve your goals then you aren’t serious about them.

  • What is your goal? Be specific.
  • Why is it your goal? It should be meaningful.
  • What is your timeline? Make it realistic.
  • How will you achieve it? Have a step by step plan for success.

How to Set Intentional Monthly Goals

3. Don’t spend what you don’t have

Lets talk about debt.

Millennials between the ages of 25 and 34 have on average $42,000 in debt, and most of it is on credit cards.

Debt means you’re throwing money away on interest when you could be doing something smarter with that money.

Now sometimes debt is ok, for instance getting a loan to buy a house, but racking up credit card debt because you just had to have a $5 Starbucks drink everyday ($150 per month), or a $500 handbag, or $40 on your nails twice a month is NOT smart debt.

If it’s not an essential need, and you can’t pay it off right away, then don’t buy it.

Choosing the right credit card is important too. Nerd Wallet is a good resource to help you research the best options.

After a lot of research and using Nerd Wallet to compare cards I decided on Capital One’s Quicksilver card, which gives you unlimited 1.5% cash back on every purchase, with no annual fee.

>> Get a $150 cash bonus when you sign up for the Quicksilver card.

Again, always pay off your credit card each month. Don’t carry over a balance if you can help it, paying interest on non essentials is like setting your money on fire.

What about student loans?

I’m going to be real with you. Going to an expensive college may not help you. Too many millennials are finding that their $50,000 college education did not pay off for them.

If possible, get your 2 year degree at your local community college while living at home for cheap and then transfer to a 4 year university. You will save thousands of dollars each semester.

4. Open a savings account

Whether you are saving up for a car, college, vacation, wedding, home, or just for life’s surprises you need to have a saving account. You can’t make any financial decisions with money if you don’t have any, right?

The great thing is that you can open one right now (after you read this post) at an online bank. I opened mine at Ally Bank, it took about 5 minutes and their website is very easy to use. I love online banks because they have a higher interest rate than physical banks because they don’t have the same overhead costs.

At Ally you can have subgroups in your account so you can have a group for vacation, emergencies, a house deposit, or whatever your heart desires and sort your money that way.

If you have debt with interest rates over 5%, prioritize paying those off before building up your savings.

How much money should you save in your 20s?

Now that you know the importance of having a savings account, how much should you save?

The commonly recommended amount is enough to cover 3 to 6 months of expenses, just in case you lose your job. If 2020 has taught us anything it’s that you never know what can happen. Who would have thought a pandemic would put millions out of work? That’s why it’s so important to have savings.

Aim to put 10-15% of your paycheck into your savings, of course you can always put away more if you’re able.

Treat saving money like a fun game. Haw much can you save if you don’t buy this or that? How much can you save this month versus last month? Compete with yourself.

5. Develop smart shopping habits

We’ve talked about how millennials have thousands of dollars of credit card debt, and while a good chunk of that may be because of basic living expenses, we can’t deny that frivolous spending is a factor.

Your shopping habits are such an important in building wealth. You need to train yourself to know what will bring lasting value, versus what only gives you a high until it arrives in the mail or you bring it home from the mall.

Lets talk about some ways to have smarter shopping habits.

Only buy what you need or love

Society is always telling us that if we buy this we’ll be happy, and if we buy that we’ll feel fulfilled.

The thing you have to realize is that marketing purposefully makes you feel like you are lacking in something, and only they (the brand or industry) have the solution to fill up that empty feeling, while simultaneously emptying your wallet.

The way to fight this is to be very clear on what happiness is to you. Know what adds real value to your life. It’s not having tons of stuff. Don’t get me wrong I love having stuff too, but as I’ve gotten older I’ve realized that having less stuff, and more money in my bank account for the truly important things, feels better than having more things cluttering up my life.

Maybe you love having a great shoe collection and that’s fine, just know that you don’t NEED all those shoes to be happy. Also access if you really love wearing the shoes, or if you just love the thrill of buying them.

If you have a habit of buying something and feeling meh about it a week later, that’s a sign that it wasn’t a good purchase.

By the way there is no shame in returning things, I get excited to return things because I know I get to use the money for something I really love later.

Shop for quality, not quantity

Do you buy things just because they’re cheap or on the clearance rack? Do you have things in your home that you bought because they were cheap but they aren’t the best quality or a style you really love? Are you overwhelmed by stuff that you bought for reasons you can’t remember?

I used to buy a lot of things that I liked for about 5 minutes, and ended up spending more money than if I had bought fewer, slightly more expensive things, that I really loved. I became stressed out and overwhelmed by the amount of stuff I had acquired. So much of it was, and still is, a reminder of money wasted on things that do not hold value for me.

That doesn’t mean you have to buy expensive things, just that it’s important to become aware of your shopping habits and to know what really holds value to you.

Don’t be a brand snob

So we just established that we shouldn’t buy things just because they are cheap, but you also shouldn’t only buy things because they are ‘high end’ and carry a certain status.

I promise you no one who’s opinion is worth anything is going to think more or less of you because of your name brand shoes.

It’s fine to save up to buy something luxurious that you know you will get years of use out of, but don’t hang your self worth on having it.

6. Invest money in your 20s

After you have a savings account with 3-6 months of savings and your debt is paid off it’s time to starting investing your money.

Investing was hands down the best financial decisions I made with my money in my 20s.

If you already have a healthy savings account you might be wondering what to do with money you already have. Investing is a great way to grow your wealth, but it can be risky so you want to invest carefully. Don’t invest into your crazy relative’s business when you know they’re a barely functioning adult, and don’t invest all of your savings. You need to have ‘liquid’ cash that you can access quickly if needed.

The earlier you start investing the better, I opened my first trading account when I was 25 and the money I invested has doubled in the last 5 years. If I started when I was 18 or 20 it would have at least tripled by now, so again the earlier you start investing the better.

I have investing accounts with both Ally and Acorns. My Ally account I don’t really touch anymore, I just let the money build. My Acorns account is a little more flexible, I’ll take money out if I need it and then build it back up.

When you sign up with Acorns you get $5 to start you off!

What I love about Acorns is that it shows you exactly how your wealth can grow over time. Putting in $5 a week can bring me a return of $71,500 in 30 years.

financial decisions to make with money

7. Open a Roth IRA

Once you’ve paid off any debt, built up your savings, and gotten your toes wet in the investing world, another smart financial decision to make with money is to start preparing for retirement.

If you’re employer offers 401ks take advantage of that. If not open a Roth IRA as soon as possible. What is a Roth Ira?

Acorns has a IRA option that does everything for you if you want a hands off approach. Institutions like Vanguard and Charles Schwab allow you to choose which EFTs, mutual funds, and stock you want to buy. I’m not going to go into extensive detail about which to buy but you can learn tons from the reddit /personalfinance board. There is tons of general financial advice but you can type ‘roth ira’ in the search bar for specific information. Or, you can hire a financial advisor.

If you go with Vanguard I do recommend having a mix of EFTs and mutual funds. Vanguard has Target Retirement funds that automatically shifts between high risk to low risk the closer you get to retirement so that is something to look into.


Thank you for visiting A Point of Light! I hope this advice about the best financial decisions to make with money in your 20s has been helpful. Learning what to do with money is so important in your young adult years. Taking the time to read this post shows that you are willing to take responsibility. If you apply these smart money habits they will help you so much throughout your life.

Remember that building wealth is a long game. It takes time and patience but it is possible no matter where you’re starting.

Don’t forget to sign up to Acorns, investing in you future is so important!

If you enjoyed this post you may be interested in:

5 Easy Ways I Made $6,000 in Free Money
10 Money Habits that Help Me Put $100,000 in My Bank Account
9 Ways to Feel Abundant When You’re Broke

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