14 Smart Ways to Build Wealth in Your 20s
July 25, 2022
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You are never too young to build wealth and set yourself up for financial success. In fact, the earlier you save and invest money, the easier it is to reach your financial goals. It might seem overwhelming at first, but with a few small steps, you can learn to build wealth and meet your goals for financial independence quickly.
Here are the smart ways to build wealth in your 20s. It's likely a lot easier than you think.
What Does Building Wealth Mean?
Building wealth means setting yourself up with long-term income. When you learn how to accumulate wealth in your younger years, you set yourself up for retirement when you want to work less or not at all. When you save and invest, rather than spend money, you'll accrue interest and capital gains to help you reach your retirement goals.
Whether you have a dollar amount in mind, want to save for retirement, or just want to build smart money habits, building wealth now in your 20s can help you set yourself up for success.
Financial Goals for Your 20s
Investing in your 20s may feel like overkill. You're likely just starting your career path and figuring out what you want in life. To put a name and number on specific financial goals can feel overwhelming.
The key is to start small but to start somewhere. For example, if you start putting $100 a month into savings and investment accounts now, you grow your money with compound interest and appreciation. It might not seem like much, but every penny counts, especially in your younger years.
To avoid overwhelming yourself, focus on saving an emergency fund, starting a retirement account, and possibly money for a down payment on a house.
14 Smart Ways to Build Wealth in Your 20s
Knowing how to build wealth in your 20s can set you up for a lifetime of financial freedom. The earlier you realize the best ways to build wealth, the easier it is to make them a regular part of your financial plan.
Here are some great ways to begin wealth building in your 20s.
- Create a Budget
A budget is essential when creating wealth. A budget helps you stay on track but also tells you how much money you have for your bills and saving money. If you make saving money a line item in your budget like any other bill, you're more likely to do it and reach your financial goals.
- Automate Bill Payments
Putting all your bills on automatic payment makes it easy to stay on track. Rather than thinking about which bills you must pay or if you can save money, you set it up automatically.
If you've created a budget, you know when to pay each bill and how much money you can save. Rather than risking spending money that you should be saving, make it automatic, so there's no risk.
- Lower Expenses
To build wealth, you must live below your means. This means don't spend everything you make. Be especially careful if you get a raise or take on another job. It's easy to let lifestyle creep happen, increasing your living expenses without realizing it. Instead, be proactive about saving and debt repayment so you have enough money to generate wealth in your 20s.
- Retirement Contributions
How much should you save in your 20s for retirement? If you already have retirement accounts, increase how much you contribute. Try to contribute the maximum amount allowed for each account type. If you can't, at the very least, take advantage of your employer match.
If you contribute as much as your employer will match, it's like getting free money in your retirement savings.
- Make Plans for Extra Income
Have a plan for any extra money you make. This could be a raise, income from a second job, or a windfall from an inheritance. Not planning what you'll do with the extra money could lead to excessive and unnecessary spending.
Rewarding yourself with some money is okay, but earmark a percentage of it to invest in great assets and grow your money.
- Emergency Fund
Save an emergency fund as quickly as you can. Life is unpredictable, but emergencies happen when we are least prepared. One major crisis could wipe out your entire savings if you aren't careful.
When you know how to grow wealth safely, you have money available for an emergency. Keep at least $1,000 in an emergency fund or other accessible bank account. Eventually, work your way up to saving three to six months' expenses to cover you in a crisis.
- Invest in Yourself
In your 20s is the perfect time to look at your gifts. What are you good at, and what can you share with others? Are you looking to start your own business? When you know what you're good at and passionate about, you can invest in those skills, perfecting them so you can use them to make more money. It might not feel like you're buying assets when you invest in yourself, but you are your most significant asset.
- Don't Procrastinate
In your 20s, it's easy to think you have time to worry about smart money moves, paying off student loan debt, and financial planning. The truth is, though, there is no better time than now to make your plan.
The more money you invest now, the more money you'll have to grow wealth safely. You have time to take chances, invest aggressively, and let your money grow. When you wait until you're older, there's less time to take chances which means lower returns and less money in your investment account.
- Long-Term Investments
It's important to avoid emotional investing. In other words, don't jump ship when the market crashes or your investment tanks. Instead, have a long-term money mindset. Don't stalk your investment accounts. Instead, let them sit and do their thing. The longer you can keep your investments, the greater your chances of building wealth.
- Diversify Investments
A diversified portfolio is key to financial success. When you put all your money in one investment, you risk everything. If that investment performs poorly, you lose it all. However, diversifying your money into many areas like stocks, bonds, and real estate investing reduces the risk of losing everything.
- Increase Income
In your 20s is the perfect time to increase wealth and your income. If you haven't started a family yet, you have more time to work side hustles or find passive income opportunities. Make the most of this time to give yourself more ways to grow your money.
- Multiple Income Streams
Multiple income streams are essential, no matter how old you are, especially in your 20s. However, when you start your adult life not depending on one income stream, you're less likely to suffer a total loss should your company close or your position be eliminated.
- Evaluate Paycheck Withholdings
You may want to revisit your paycheck withholdings if you continually receive large tax refunds. While a big refund might feel great at tax time, you gave the government use of your money when you could have used it to build assets. Change your withholdings so the government holds onto less money and you have more money to invest.
- Make Steps to Eliminate Debt
High-interest debt has an opportunity cost of the best assets to buy. When you waste money on interest, you have less money to invest. Rather than focusing on investing, create a plan for debt repayment (loans and credit card debt) so you have more money to invest and can create a solid financial foundation.
How to Build Wealth in Your 20s FAQ
How Much to Contribute to 401K in 20s?
It's always a good idea to max out your retirement contributions yearly. If you can't contribute as much as you're allowed, contribute 10% of your salary at a minimum. Make sure, however, that you take advantage of any employer match you get from your employer.
What Are the Best Investments to Make in Your 20s?
In your 20s, you have more time to invest aggressively. Because you have 20 to 30 years to make up for any losses, you can take chances and earn higher rewards. If you're looking for assets to buy in your 20s, focus on stocks, some bonds, and real estate investing.
Why Should You Start Investing When You Are Young?
The more time you give your money to grow, the more money you'll have in retirement. Waiting to save for retirement, or any other financial goal, will require you to save more money each month to reach the same goal. So make it easier on yourself and start generating wealth in your 20s.
How to Grow Your Money: The Bottom Line
These smart ways of growing your money and build wealth in your 20s are something everyone can implement. Taking advantage of compound interest and earnings now will help you grow your money fast. As a result, you'll have an emergency savings account, money earmarked for other financial goals, and a plan for retirement. Learn more by signing up and visiting our blog.
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