Money in Your 20s – What to Do with it

People in their 20’s are famous for throwing away money once they get it. Remember why it’s hard for people in their 20s to save money? I’m convinced that one of the biggest challenges that young adults face is to manage their newly acquired money. Going from college student income to someone rolling in the dough overnight is not easy. It may not sound like a challenge to many… I mean, why is having more money ever a problem?

But, it is a problem. This is a critical point in your life and learning what to do with money while you’re still in your 20s will have rippling effects on your finances for decades to come. If you are in your 20s and you are left wondering what to do with the money that you do have, here are some great options (in no particular order):

money in your 20s

1. Invest in Your Retirement

You can start saving for retirement in a variety of ways, but the important thing is to start now! Compound interest is more powerful than a large salary and if you start investing as much as you can in either your 401(k) or your Roth IRA, you will be glad that you started.

2. Save up an Emergency Fund

An emergency fund is the key to protecting yourself from going into debt in the future. Too many people are forced to pay for unforeseen expenses with a credit card or by borrowing money from mom and dad. It’s bad enough that some young adults still live with their parents, let alone borrow money because of bad decisions. By saving up for an emergency fund, you can give yourself a lot of piece of mind.

3. Travel

Traveling should be something that all young people prioritize. It seems like my entire facebook news feed is full of friends having kids without ever taking the time to travel to places on their list. Before you settle down with a family, why not invest some of your extra cash in some great life experiences. Hopefully you will use it to learn about other cultures and not just brag to your friends where you have been. My wife and I currently take a yearly vacation to celebrate our anniversary.

4. Pay Off Your Debt

While you may think it’s okay to live with some debt, there are many great reasons to pay off your debt as quickly as possible. Whether it’s a car loan or student loans (I hope you didn’t forget my rant about why you should never take a loan out for a car), debt is debt. It costs you money to owe people and if you have extra money to throw at your debt, why not become debt free. In case you missed it, here’s some advice on how to get pay off your student loans quickly. Why pay interest on something when it can be avoided?

5. Save Up a Down Payment for a House

Home ownership is a dream of mine. Not because of some status, but because of the connection to building up wealth and equity. Instead of always paying rent for the rest of my life, I would much rather pay a mortgage for 30 years (or less if I pay it off quicker than that) and live with very little housing costs for the rest of it. But, this will never happen if I can’t save up the necessary money for a down payment. Making this a priority is a great option for anyone in their 20’s. While it may be hard to keep setting money aside without seeing any concrete results, it will pay off in the long run. The earlier you get into a house, the earlier you are building equity and the earlier you are living mortgage-free.

6. Buy a Life Insurance Plan

While some may not prioritize this option, I think this is a great way to use your money. If you have a spouse or children, this should be even more important. I would hate to leave my wife in a poor financial position and I am sure many of you think the same way about your loved ones. While it may seem like you are young and healthy, and therefore do not need a life insurance plan, this is actually why it is a great time to get one. I elected to get a whole life insurance plan and did so at an early age because I knew locking the premium in now while I was young would be a smart decision. Can you imaging having to get life insurance after being diagnosed with a serious health condition?

7. Invest in a Business Idea

While many people think that focusing on their career is the best path for them, I am convinced that having diverse income streams provides the best security. The best way to diversify your income is to invest in a business idea. Whether it is starting your own business or simply being a financial backer in a new company, the options are endless. While there is a possibility of you losing your investment (so you should be careful), I think you will be surprised about how much this opens your eyes to the possibilities of generating a side income. The old adage, “You never know until you try” rings true in this situation. In your 20’s, you are likely to have more energy and passion than later in life. Might as well do it while you can.

Having money when you are young does not mean that you need to throw it away on temporary thrills. If you are smart and plan for your future, you could not only speed up your retirement, but enjoy a greater peace of mind knowing that you don’t have to worry about having enough to pay the bills.

What do you do with extra money? If you could do it over again, what would you do with the extra money that you had in your 20s?

9 Responses to Money in Your 20s – What to Do with it

  1. I don’t think that travel is a universal value, though it seems to be the only spendy area PF bloggers are gung-ho about, and shouldn’t be elevated to the necessity level of insurance, and EF, and retirement savings.

    My husband and I would rather spend our money and vacation days seeing family and friends than sight-seeing in other countries (relationships over tourism). Maybe when we aren’t invited to so many out-of-town weddings we’ll plan a vacation abroad, but it’s a little ways down our list. I’m sure the people on your FB feed value having families at a young age over seeing other places (or experienced accidental pregnancies that constrained their choices). To each her own.

    • Great point Emily! Yes, I didn’t mean to say that having families is over-rated. Yes, those out of town weddings can drain the budget and I understand not being able to go abroad very often. We did a near-cation last year because of budget constraints.

    • Traveling isn’t for everyone, but it’s addicting for many people. It’s more fun to travel when you’re younger. 🙂
      Now that we have a kid, we’ll be traveling within the US for 5-6 years.

  2. Great Article! I’ve just started laying aside money to invest and I’m following a lot of the tips laid out on this website.

  3. As much as I like this article and want to do all these things, by the time I pay my student loans and buy groceries and medicine, I barely have $200 left!

  4. @Emily I think travel is a universal value. Whenever I travel I can learn lots of things (also new business idea). So whenever I get time I try to use it by traveling. The relationship with my wife also becomes strong.

  5. I haven’t done #6, and #7… I do freelancing and the blog, does that count? Happy to say I’ve tackled #1-#5 and definitely agree with you on their necessity.

    I guess I’m not sure why I would need a life insurance plan. I have a mini life insurance plan through work, but if I don’t have kids… who is this plan going to benefit? Doesn’t seem to be a point. Plus, I don’t like being morbid…

  6. Saving money is indeed an important factor in today’s life. I agree that people should understand, learn and embrace the value of saving money while they’re still young.