Saving

4 money choices you can make in your 20s so you can be wealthier in your 30s

Aditi Shrikant@aditi_shrikant
Twenty/20

Choices you make in your 20s can set you up for financial success in your 30s and beyond.

"Money is really simple," says Mark La Spisa, a certified financial planner and president of Vermillion Financial Advisors in South Barrington, Illinois. "But most people respond to it, they don't plan for it." By taking control and making a few smart decisions early on, you can put yourself in a much more secure position.

Here are four things you can do in your 20s that you'll thank yourself for later.

1. Master your cash flow

Developing good cash management habits is crucial, says Janet Stanzak, a certified financial planner and owner of Financial Empowerment in Burnsville, Minnesota. "In your 20s, you've got to establish your discipline — otherwise it will haunt you for a lifetime."

First, track your finances to make sure you understand where your money is going. Then be deliberate about your priorities, so you know you're spending wisely on regular financial obligations like rent, utilities, and phone bills, and keeping your spending on the fun stuff in line with what you can afford.

Stanzak suggests a version of the 50-30-20 budget, which divides your income among basic living expenses, discretionary spending, and long-term savings and investments.

2. Pay yourself first

If you don't commit to saving, it's easy for other expenses to eat up your cash. Set up automatic contributions so that a portion of every paycheck goes into your workplace retirement account and gets pulled from your checking account into savings for other goals, Stanzak says.

An early start gives your money more time to grow and allows you to take advantage of compounding — when you're earning interest on your interest as well as on your savings. In this classic example from the Federal Reserve Bank of St. Louis, someone who starts investing for retirement at age 25 ends up with more money at retirement, even though someone starting at age 35 contributes three times as much over the years.

3. Avoid unnecessary debt

The power of compounding works against you when it comes to debt: Mounting interest charges can make it harder to pay off your balances. Limit your credit card spending to what you can pay off in full each month, and be smart around borrowing for big purchases like a home or car.

Experts recommend that when it comes to financing a car purchase, for example, you stick to a borrowing term of five years or less — and then driving your car for at least another five years beyond that. That sets you up for years in which you don't have to make a monthly auto loan payment.

The average monthly payment on a new car is about $550. Putting that back in your budget could go a long way toward helping you meet other financial goals like saving for retirement or paying off student loan debt.

In your 20s, you've got to establish your discipline — otherwise it will haunt you for a lifetime.
Janet Stanzak
certified financial planner

4. Open a Roth IRA

There are two kinds of individual retirement accounts: traditional and Roth. You make Roth account contributions with after-tax dollars, and that money grows tax-free.

Using a Roth is an especially smart move for young workers, Stanzak says. Your current tax rate is likely lower than what it will be at the time you retire, so you'll have decades of tax-free growth ahead.

More from Grow:

Get the Grow Newsletter Every Week
The best money advice you never got, delivered to your inbox weekly.
The best money advice you never got, delivered to your inbox weekly.
 

Twenty/20
acorns+cnbcacorns cnbc

Join Acorns

GET STARTED

About Us

Learn More

Follow Us

All investments involve risk, including loss of principal. The contents presented herein are provided for general investment education and informational purposes only and do not constitute an offer to sell or a solicitation to buy any specific securities or engage in any particular investment strategy. Acorns is not engaged in rendering any tax, legal, or accounting advice. Please consult with a qualified professional for this type of advice.

Any references to past performance, regarding financial markets or otherwise, do not indicate or guarantee future results. Forward-looking statements, including without limitations investment outcomes and projections, are hypothetical and educational in nature. The results of any hypothetical projections can and may differ from actual investment results had the strategies been deployed in actual securities accounts. It is not possible to invest directly in an index.

Advisory services offered by Acorns Advisers, LLC (“Acorns Advisers”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Brokerage and custody services are provided to clients of Acorns Advisers by Acorns Securities, LLC (“Acorns Securities”), a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Acorns Pay, LLC (“Acorns Pay”) manages Acorns’s demand deposit and other banking products in partnership with Lincoln Savings Bank, a bank chartered under the laws of Iowa and member FDIC. Acorns Advisers, Acorns Securities, and Acorns Pay are subsidiaries of Acorns Grow Incorporated (collectively “Acorns”). “Acorns,” the Acorns logo and “Invest the Change” are registered trademarks of Acorns Grow Incorporated. Copyright © 2019 Acorns and/or its affiliates.

NBC Universal and Comcast Ventures are investors in Acorns Grow Incorporated.