Saving

4 Money Lessons Everyone Should Know by Age 25

Your early 20s are likely your first taste of financial independence—as you graduate from college, jump into the workforce and move out on your own.

Adding to the pressure: How you manage your money now can have a significant impact on your bottom line for years to come. So it’s important to develop habits that set you on the path to a secure financial future.

Here are four smart-money concepts experts say it’s important to grasp by the time you hit the quarter-century mark:

1) Create a savings safety net

Four in 10 Americans couldn’t scrape up $400 for an unplanned expense, according to a recent survey from the Federal Reserve. Think of an emergency fund as the financial equivalent of “in case of emergency, break glass”—one that could save you from taking on debt or making other desperate moves.

To get your rainy-day fund started, set up automatic transfers so part of each paycheck gets funneled into a high-yield savings account. “Stash your emergency fund somewhere other than your primary bank,” recommends Ian Bloom, a certified financial planner (CFP) and owner of Open World Financial Life Planning in Raleigh, North Carolina. That separation will help you avoid the urge to dip into your savings.

2) Harness the power of compounding

Would you rather have $1 million today or a penny that doubled every day for 31 days? “Most people choose $1 million, but a penny doubled ends up being more than $10 million,” says Levi Sanchez, a CFP and founder of Millennial Wealth in Seattle.

The penny puzzle highlights the power of compound interest, which enables your money to grow at a faster clip because you’re earning interest on interest as well as on your savings. Basically, it’s a fast, reliable way to make bank—and savers who start earlier can make the most of that force.

But there’s a warning here, too. “Compound interest can work against you when it comes to high-interest debt, which is why it’s so important to pay off your credit card balance every month,” Sanchez says. Otherwise, it will snowball.

More from Grow:

3) Live within your means

Simply put, this means don’t spend more than you earn. The sooner you get on board with a budget, the better. “Tightening your belt when you’re used to a certain lifestyle, like eating out multiple times a week, is a lot harder than structuring a sensible cash flow for the first time,” Bloom says.

You can start simple, by following the 50/30/20 rule: Earmark half of your income for basic living expenses, 30 percent for fun stuff like shopping and travel, and 20 percent for long-term goals like paying back student loans or building retirement funds.

4) Pay yourself first

Make sure you’re nailing the “20” portion of the 50/30/20 rule by automating your savings so that the money is whisked out of your checking account before you have a chance to miss it (or spend it). Prioritizing savings helps you hone in on long-term financial targets (retirement, down payment on a house) over in-the-moment desires (internet impulse buys, dinners out).

If 20 percent seems steep, start small and scale up. “A good savings benchmark is 10 to 15 percent,” says Barbara O’Neill, a CFP and a financial management specialist with the Rutgers Cooperative Extension. “If you have high housing expenses or debt obligations, even 4 to 5 percent can make a difference. I advise people to save until they feel a pinch.”

That helps ensure you’re on the path to meet your long-term financial goals.

Check out: 4 Money Moves to Make Before Graduating College

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.

NBCUniversal and Comcast Ventures are investors in Acorns Grow Incorporated.