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Suze Orman: 'It's not about what you earn' — here's what to focus on in your 20s to build wealth

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Suze Orman.
Photo by Marc Royce

Making smart money choices in your 20s can set you up for financial success later in life, which is why developing healthy saving and spending habits during this decade is crucial, says Suze Orman, financial expert, bestselling author of "Women & Money," and host of the "Women & Money" podcast.

"No matter how much money you make, you need to maximize what you spend that money on." And to do that, she suggests, "live below your means, but within your needs."

That means changing your spending behavior and tackling your debt, while learning how to take control of your finances. Here are Orman's three rules for developing habits in your 20s to help you achieve financial independence.

1. Get a handle on spending

"I know a lot of you feel like you need to maximize your earnings in your 20s," Orman says. "It's not about what you earn ... the more money you make, the more money you spend."

Your 20s are a great time to thwart lifestyle creep, which is the idea that your standard of living increases as you earn more, turning luxuries into necessities. Take a hard look at your expenses to ensure you're not spending money in your paycheck just because it's there.

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Suze Orman's three rules to earn more money at your job

And as you earn more — from a raise, a new job, or a side hustle — look for opportunities to save that extra money instead of finding new things to spend it on.

"Before you ever spend a penny, you have to ask yourself a question: 'Is this a need or a want?'" Orman says. "If it's a want, walk away."

2. Learn to love saving

"You need to get as much pleasure out of saving as you do spending," Orman says.

To do that, reframe your thoughts around smart spending to focus on your savings goal — not what you've giving up. "It's not about restricting," she explains. "It's that you control your money. Your money doesn't control you."

Instead of radically changing your spending habits by sticking to spending limits, Orman said on a recent episode of her podcast "Women & Money," figure out how much money you typically spend and start with small changes. For example, if you get a haircut every four weeks, try getting one every six weeks instead to save money.

You need to get as much pleasure out of saving as you do spending.
Suze Orman
Bestselling author of 'Women & Money'

3. Prioritize financial security

"I know you think the dream is 'I want to own a home.' ... Those things are not the things you should dream about," Orman says. Instead, focus on financial security: "I want to get out of debt, I want to have an eight-month emergency fund, I want to be powerful over my own money. Start dreaming there."

Building up cash savings for an emergency fund helps provide a buffer for unexpected expenses like an emergency car repair, medical bills, or a job loss. And paying down debt like student loans and credit cards gives you more freedom in your monthly expenses to pursue other goals. "You may look [at your finances] and go, 'Oh my God, I have enough money for a 20% down payment on a home,'" Orman says.

"Once you have control over your money ... you'll find your money will fall in line," Orman says.

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