Making smart financial moves is important at any age, but if you’re in your 20s, smart money moves early on will set you up for success for decades to come. This is true whether you decide to be single, end up with a partner or end up having a family. Increasing your income, investing your money, creating an emergency fund, getting out of any debt and being smart with your spending are all key to be build wealth in your 20s.

Hustle At Your Job

Your lifetime earnings are decided in the first decade of your career. If you went to college and graduate in 4 years the first 8 years of your career will fall in your 20s. Make these years count. Don’t get distracted by spending too much time thinking about how to save money. Increasing your income early on will help you build wealth in your 20s.

Create a plan to double or triple your salary, no matter how crazy that amount may seem at the time. This plan may include strategic networking to get promoted or switch industries, identifying what you need to do advance your career, get another degree and / or expand your skill set. Dream big and create a plan with steps you can act upon to get to that dream. If you only dream it and don’t take actionable steps towards that goal it will always remain a dream.

See Also: 10 Pieces of Career Advice for Young Professionals

What if you don’t have the job you want or don’t know what you want to do yet? That’s ok, you don’t need to have everything figured out. Continue to hustle and start to better understand what you don’t like and build your network. Get a career sponsor and a career mentor. It is easier to switch jobs when you have a network that can help you get that first interview.

Begin Building a Passive Income Stream or Side Hustle To Make More Money

Making money isn’t limited to just your day job. Build wealth in your 20s by starting to build a passive income stream. Generating a passive income stream doesn’t require a lot of effort. And, you will have a compounding effect as your net worth increases. It won’t seem like much money as you are starting out. But, it’ll begin good habits and that amount will increase over time.

See Also: The Ultimate List of Passive Income Ideas in 2020

If you’re in debt or are only beginning to build your wealth generate more money through a side hustle. The amount of money you make in a side hustle usually is proportional to the amount of hours you spend on it. For example, you’ll make more money on Instacart based on the number of jobs you accept. Other side hustles, like writing an e-book, will require a lot of effort up front. Over time, these side hustles will turn into passive income streams.

Invest In Yourself In Your 20s

Investing in your 20s isn’t limited to investing your money. You also need to invest in yourself. You’ve invested in yourself by attending college, but learning doesn’t end there. There are other professional certifications and additional degrees that can significantly increase your earning potential. Investing in yourself in your 20s is easiest when you have fewer responsibilities. This can mean getting your MBA or another Masters degree, getting your CPA, CFA or PMP.

Investing in yourself also isn’t limited to education. Take time to travel and learn new cultures, exercising regularly and eating healthy. Healthy habits also pay dividends in the decades to come.

Start Saving Money In Your 20s

Saving money in your 20s starts with knowing where your money goes, creating a budget and then starting to save money.

Where should you put the money you’ve saved? Money saved in your 20s should first be used to build an emergency fund. An emergency fund is money that is easily accessible and liquid (such as money held in a checking account or savings account) that you have for when things go wrong. This includes an unexpected health bill, unexpected car repair, if you lose your job and so forth. The golden rule is 3-6 months of expenses but it really depends on your situation. You can find a calculator here to help identify how big your emergency fund should be.

Invest Money In Your 20s

Start investing money in your 20s. How much should you invest? As much as you can. That money will compound over time and help you create a passive income stream. You can automate your savings through direct deposit and then invest that money in a brokerage account. There are many potential big expenses on the horizon like a house, additional education, car, family and it’s much easier to put a down payment on a house or pay out of pocket for grad school if you started building your savings on day 1. No amount is too small to invest.

It’s not enough to just save money though, you also need to get your money to work for you. Invest your money in stocks, ETFs, mutual funds and bonds.

See Also: How to Start Investing

Build Wealth In Your 20s By Saving for Retirement

The easiest way to build wealth in your 20s is to save for retirement. Companies offer 401(k) matches and your contributions are tax free. Without question, take advantage of your company 401(k) match. This is free money. It’s ok to only meet the match when you’re starting your career but if you don’t meet the match you are leaving free money on the table. As your career progresses, look for opportunities to significantly increase your 401(k) contributions and max it out to take full advantage of the tax benefits.

You can also build wealth in your 20s by contributing to a Roth IRA. While your income is low open a Roth IRA. Contributions to a Roth IRA are not tax deductible but when your income is low this has less of an impact. The tax benefits to a Roth IRA are when you take the money out in retirement you aren’t taxed on any gains and there are no required minimum distributions. As your income increases, you may hit a point where your eligibility is phased out and then are not eligible to contribute to a Roth IRA anymore. At that point you’d have to look into a Backdoor Roth IRA so it’s best to take advantage of a Roth IRA as soon as you can. A Roth IRA is pretty straightforward, but there are a few Roth IRA rules to be aware of.

At first your retirement accounts will seem really low. But, by the time you turn 30 you’ll be impressed with how much your wealth has grown in these accounts.

Minimize Your Debt

It’s important to keep your debt to a minimum or get out of debt completely in order grow your wealth in your 20s. In the Class of 2018 69% of college students took out student loans and graduated with an average debt of $29,800 according to Student Loan Hero. How can you start chipping away at this as quickly as possible? There are also companies that are offering loan forgiveness as one of their company perks.

While you may already have student loan debt, you don’t need to find yourself in additional debt, especially from credit cards.

If you need a car for your job and need to take out an auto loan, spend as little as possible here. Buy used, but also buy smartly. Don’t justify buying a more expensive car because you’ll have it for so many years. The truth is, you have no idea where you’ll be in a few years. You may move into (or out of) a city, to a new country, get married. There are also so many options these days to avoid buying a car such as living and working in a city to take advantage of public transportation, working from home, and working as a consultant and traveling every Mon – Thurs.

Live Like You Are Still in College

Building wealth in your 20s is also dependent on controlling your expenses. When you are in your 20s you either recently graduated or have graduated within the last 10 years. College is recent enough where you can probably recall vividly how you lived during those years: frugally.

In college, you most likely are living in a very tiny space with roommates. You’re surrounded by businesses that offer the college specials. For example, show your student ID to get a certain percentage off and bars that cater to college students with $2 beer nights. You had opportunities to walk across the hall and borrow friends clothing. Meal prep included ramen noodles and microwave mac and cheese.

Is frugal living not for you? This doesn’t have to be a permanent lifestyle, but the longer you’re able to live frugally like you lived in college the easier your finances will be. You don’t have to cut back in all areas either, the single most important expense is housing.

Spend As Little As Possible on Housing

Housing is likely the largest expense in your 20s, and the easiest one to blow. Nice, spacious, well located places are the most expensive. Don’t become “house poor.” Experts say housing should be no more than 30% of your gross income and that includes all housing expenses. You will have to make sacrifices so identify what is most important and where you are more willing to cut. And, if you’re going to live on your own follow these financial tips so you don’t spend too much on housing.

If location is most important, look into studio apartments, living with roommates and a place that is outdated. If you want the nice kitchen and something more spacious you’ll probably have to look at a less ideal location. In some cases this may mean looking at alternative cities, not just across town. When you don’t understand how people can afford certain things you probably don’t have to look much further than the percentage of income that is going towards housing. Bringing your own lunch can save $7 / day or $140 / month. Being smart with your housing can save you hundreds a month and thousands a year.

Limit Spending on Food and Drinks

Limiting spending on food and drinks is a great money move in your 20s because it starts developing discipline around spending money. It’s hard to say no to always going out with friends and spending money on food and drink but it adds up. By learning how to budget and then prioritize how you spend money on food and drinks it will help you prioritize your spending in other areas.

The most frugal way to limit spending money here is to never eat out. But, where is the fun in that? Plus, to the first point on hustling at your job it’s important you build your network and build relationships. You can still go to restaurants and bars and not break the bank. For food and drink, take advantage of happy hour specials. Go over a friends house and have a drink before heading to the bar. When you get to the bar, limit yourself to one drink. Take advantage when there is free food at events. Bring your lunch. There are plenty of ways to continue to enjoy eating out while controlling your spending.

When you buy groceries, look for coupons and deals. There are also ways to spend less on food by buying cheaper options. For example, buy oats and make oatmeal instead of single serve yogurts. You can find dinner recipes and meal planning tips to save money.

Limit Spending on Clothing

Your college wardrobe and professional wardrobe will not look the same so spending money on clothes in unavoidable. It’s unrealistic to expect that you can go on a clothing ban unless you have a robust professional wardrobe from college or what you wear to work is more casual. When you do spend money on clothing, take advantage of sales.

Do spend enough where you look presentable at work. You want to position yourself early on as a go getter and dressing presentable will help form favorable opinions. Don’t break the bank while doing this though, you do not need to buy designer. You can buy nice work outfits from TJ Maxx or buy second hand and look professional. If your company gives you a laptop bag with your laptop use that for the first few months until the right sale comes along. Later, take advantage of Black Friday shopping at the outlets for a nice black tote bag. You do not need to start day 1 (or even year 2) with a Tory Burch or Prada tote bag.

Live Like You Have The Least Money of Your Friend Group

Living like you have the least amount of money of your friend group is easiest to do when you first graduate college. Everyone is just getting established and six months out of college is when the first student loan payment is due. Friends will want to have a few drinks at home before going to the bar to save money. Or, stay in instead of going to a bar. You can go on trips that are driving distance and share rooms with 3 other people. Even if you earn more money than your friends, or have less debt than your friends, spend as if you have that same income limitation or same debt limitation. Then, put that extra money towards your emergency fund, retirement and investing.

As you age, friends will move away and you’ll need to spend money on flights to see them or vice versa. Between careers and starting families it will become harder to see friends and you’ll spend more money to hang out as you prioritize convenience over money.

Don’t Increase Your Spending for 2-3 Years

Lifestyle inflation happens when you increase your spending as your income increases. Spending more now could mean blowing through funds you’ll need for a down payment, retirement, etc. The more you can save when you’re young the easier it is as that savings will continue to generate passive income for you. As your career progresses, this will also become harder to avoid not due to increased expectations but less free time. Things you used to be able to do yourself you will to pay someone to do for you or you won’t have as much time to shop around for a deal. This may be as a result of a more demanding career or deciding to raise a family. Your tastes will also increase as you age.

Take advantage of being young and keep your spending steady the first few years after you graduate, even as your income increases. Live like you are still in college for the first few years and then slowly increase your spending after that. Invest the money you’ve saved instead and take advantage of compounding interest to begin building a passive income stream.

Take Advantage of Company Benefits

A 401(k) match isn’t the only company benefit you should take advantage of. Some health insurance plans offer money towards a gym membership every year. Depending on the industry and area, companies may offer free or discounted food, free gyms on-site, discounts on auto insurance, discounts on personal travel and more. Look at your internal company site to learn more about perks offered by your company. And, if your company doesn’t have great benefits it’s a hot job market now. Ask your friends for an employee referral and interview at another company.

How to Be Smart With Money In Your 20s Summary

The financial recommendations above seem like a lot, especially when you are in your 20s and just starting your career. How are you supposed to fund an emergency fund, invest, pay off your loans and actually live on your salary? Don’t get overwhelmed and take baby steps to start small. The less money you spend, the more money you’ll be able to invest or put towards paying down debt. The more you can increase your income, the less focus you need on keeping your expenses small. These smart money moves in your 20s will help set you up for success for decades to come. Yes, these are the years it’s hardest to do that as you’re likely making the least of your career now. But, your lifestyle expectations are also the lowest. By following the advice above, you’ll be in a great position to build wealth in your 20s.