25 Ways To Build Wealth In Your 20s

group of 20 year olds who have built wealth are now on a cruise

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Life in our 20s is filled with fun times and figuring out what we're doing in our adult lives. We seek to be independent from our parents and are discovering how to manage our money. This brings many to go online and ask questions such as, “how to build wealth in your 20s?”

The thing with building wealth in your 20s is that there are many ways to do it. With enough determination, focus, and a solid plan, one can make their 20s a decade of their life where they significantly increase their net worth.

While others are focusing on partying and spending their money, you might take the initiative to create multiple sources of income, pay down your debt, and start investing as much as you can so that you can be financially independent sooner than later.

In this article, we'll discuss how to build wealth in your 20s and strategies to succeed in doing so. So, if your goal is to retire a decade or more younger than your friends, then this is the article for you.

Let's jump right in.

What is Net Worth?

Before we get into how to build your wealth when you're in your 20s, we should define what net worth is, as your net worth is a number that describes how much wealth you have.

Net worth is defined as the sum of all of your assets minus the sum of all of your liabilities. Another way to look at net worth is it's the sum of the value of everything you own minus the sum of everything you owe, such as debts.

Your net worth is an indicator of how wealthy you are because those with a high net worth can use that money to create more money or to live off of without having to work. Financial independence, or financial freedom, is when your passive income, often generated from having high wealth, is high enough to cover all of your expenses, which then makes working optional.

As we'll go over below, raising your net worth involves doing two main things. One is to increase the value of your assets, such as your investments, and the second is to decrease your liabilities, such as paying off your credit card debt or student loans.

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How to Build Wealth in Your 20s

Now that we've gone over net worth, let's speak on how to increase your net worth in your 20s and, in turn, grow your wealth. Even if you have nothing right now, you have many options.

1. Set Financial Goals

Setting financial goals helps you set direction in your financial life. Therefore, it makes sense to set short-term, medium-term, and long-term goals.

For example, you might make a short-term goal to pay off your credit card in the next 12 months. You then might make a medium-term goal to save up enough money in 3 years to put a down payment on a house, which you figure out by determining how much money you'll need to save each month. Lastly, you might make a long-term goal to increase your net worth to one million dollars in the next 15 years.

Some of the benefits of setting financial goals include:

  • You have a direction in how to grow your wealth.
  • You are more inclined to spend money on things that matter rather than wasting your money on frivolous purchases.
  • You'll feel good as you make progress on your goals which will motivate you to continue making progress towards future goals.

Read about how to set financial goals here.

2. Create a Budget and Track Your Spending

Creating a budget and tracking your spending will give you an accurate picture of where your money comes from and where it's going. You'll be able to identify where you're spending too much money and where you have opportunities to save. You'll also know how much money you have leftover each month, which can be used to pay down debt or invest for the future.

There are a few ways to create a budget, but we recommend downloading Clean Cut Finance's Free Home Budget Template. Our template does all the math for you and shows charts of how you spend your money. You'll also see your total savings rate, which is defined as the percentage of the money you have leftover each month compared to the total money you bring in.

You can use the cash envelope system for budgeting if you need or want more control over your finances.

After you've created a budget, consider using the app Trim to help you reduce your overall expenses. Trim negotiates things like your cable, internet, and phone bills and helps you identify and cancel unused subscriptions.

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Budget your money and track your spending with this fully responsive budget spreadsheet.

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3. Pay Off Credit Card Debt

In 2019, the average person in their 20s in the US had $2,709 in credit card debt, according to Experian. With APR as high as 29.99%, carrying a balance on your credit card is a losing proposition.

If you're carrying credit card debt, the first thing you should do is to pay it down as quickly as possible. If you're looking for how to build wealth fast, paying off your credit card debt definitely helps.

Let's use an example of how much credit card debt costs someone who is paying off a balance of $2,500 by paying the minimum payments each month. Assuming the APR of the credit card is 24%, you could pay as much as $2,275.04 in interest on top of the $2,500 you already owe, and it could take you 10 years 9 months to pay off the card.

Now, let's assume you decide to add $50 to the minimum payment each month to pay off your credit card faster. Just by adding $50 to the minimum payment monthly, you could lower the total interest you pay to $782.97, and you'd be able to pay the credit card off in approximately 2 years 10 months.

In this scenario, you'll have saved $1,492.07 by paying an additional $50 each month towards your balance.

When you look at how much credit card debt is really costing you, it makes sense to pay your balance down to zero as fast as possible.

One way to quickly pay down credit card debt is to pick up a side hustle. Here's an article with 50 ideas to earn money online so that you can build wealth and pay off debt.

4. Build an Emergency Fund

An emergency fund cushions you when something unexpected in life comes up. This could be something like an injury that takes you out of work for a few days, an emergency room visit, a broken-down car, or an appliance that needs a replacement.

Financial experts generally agree that having three to six months' worth of living expenses in your emergency fund is best. That said, less than 4 in 10 Americans are prepared for a $1,000 emergency. If you're struggling to save up to six months' worth of expenses, set small incremental goals, such as reaching $1,000 saved first.

An emergency fund is best stored in a high-yield savings account. CIT Bank is a secure place to open a high-yield online savings account and store your money for life's unexpected events.

Use this guide to learn how to save $1,000 for your emergency fund. Additionally, click here to read how to save $10,000 in a year.

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5. Pay off Student Loans

According to EducationData.org, the average federal student loan debt is $36,510 per borrower. As a result, many graduates struggle to make payments and find themselves paying off their student loans for much of their middle adult life.

As paying off debt empowers one to build wealth, paying off your student loans as soon as possible makes sense.

Here are a few strategies to pay off your student loans sooner than later:

  • Once your credit card debt is paid off, apply your extra money as prepayments to your student loan balance each month. There's no penalty to paying more than the minimum payment so pay more and as much as you can afford.
  • If you have a steady income, consider refinancing your loans into a single, lower-interest loan, and pay more than the minimum monthly payment whenever you can.
  • Use side hustles and temporary second jobs as ways to raise money to pay down your student loan balances.
  • Consider paying off loans with the highest interest rate first to minimize how much total interest you pay when you have the option.
  • Alternatively, consider paying off loans with the smallest balances first and reward yourself for each loan paid off.

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6. Invest in Retirement Accounts

Accounts like a 401(k), offered by many employers, or a Roth IRA are excellent avenues to invest your money with tax advantages.

With a 401(k), you'll contribute pre-tax dollars from your paycheck, and your investments will grow tax-free. When you withdraw money later in life (when you're 59½ years old or older), only then will you incur taxes.

On the other hand, with a Roth IRA, you'll contribute after-tax dollars to your account, and, similar to a 401(k), your investments will grow tax-free. However, since you paid taxes on your money before you added the money to your Roth IRA, you will not have to pay taxes on your gains when you remove the money later in life (when you're 59½ years old or older).

There are many ways to invest in your retirement accounts. For example, you might buy index funds, mutual funds, individual stocks, bonds, or do more advanced strategies. Generally speaking, investing regularly in index funds is a mostly hands-off way to grow your money over a long period of time.

Speaking with a financial advisor is a safe way to learn more about your retirement investment options.

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7. Live Below Your Means

Living below your means simply means you spend less than you make. Going out of your way to spend less than you make allows you to save money for your future. Living below your means may mean making certain sacrifices in your everyday life, which may include things like:

  • Buying a used mobile phone instead of a cutting edge new model
  • Spending money on a used car that lasts you many years versus buying a new car every 3-5 years
  • Going out to eat one less time a week
  • Spending less money shopping online
  • Living a more frugal lifestyle

This is just a small list. There are many ways to cut spending to promote living below your means. What's important is to not think of this as restricting yourself from having things, but instead having the discipline to spend money on things you need versus always buying things you want.

On the other hand, another way to live below your means without giving up nice things in your life is to increase your income. You can increase your income in several ways, including:

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8. Reduce Your Expenses

Reducing your expenses means more money left over at the end of each month. This is money that can be used to pay down debt or invest, enabling you to build wealth.

Lowering your expenses doesn't simply have to mean cutting your spending on things you enjoy. In fact, many people are overpaying for things like their internet, cable, and phone. Other people spend money on things they don't even realize, like subscriptions that they stopped using months ago and are still paying for.

The good news is, some bills can be negotiated, and unused subscriptions can be canceled. In fact, using the app Trim, you can have your bills negotiated and your subscriptions canceled for you. Trim pairs you with experts who will take care of the work for you, and you only pay a small portion of your total savings.

Of course, you can lower your expenses in other ways as well. You can live in more affordable areas, shop with coupons, buy items on sale, shop at consignment stores, and find low-cost or free activities to do for fun, as some examples.

9. Buy a Car That You Won't Replace For a Long Time

Cars are depreciating assets, which means that each year that you own a car, it's worthless money than the year before. In fact, a car can lose over 25% of its value in the first year alone.

Keeping this in mind, continually buying new cars is a surefire way to hinder your ability to build wealth in your 20s and years beyond.

Instead, what makes more sense is to find a car that you absolutely love and will drive for many years to come. A well-maintained car can last well over 200,000 miles. If you drive an average of 12,000 miles per year, that means your new car could theoretically last over 16 years if you kept it in good shape.

Alternatively, one way to save money on car purchases is to purchase used cars with around 100k or more miles on them. These cars are generally old enough that you'll often pay a fraction of the cost of a new car, and if you buy a good model and take good care of it, these cars will still last you for many years.

10. Consider Buying a House

A house may be the biggest purchase you'll ever make, and it's important to consider how owning a house can affect your life. When it comes to building wealth, your house is an asset that gets factored into your net worth. As you build equity in your house, your net worth will rise.

You can use your house to earn more money, as well. You can do this by renting out a room on Airbnb, through local listings in your community paper, or on a Facebook community page.

Another option is to buy a duplex or multi-family home and then live in one of the units and rent out the others. This can be an effective way to not only build wealth, but also have others pay your mortgage.

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11. Learn to Negotiate

Negotiating is a skill that can save you lots of money and also help you make more money throughout your life.

When you're buying a car, a house, and other major purchases, you can often negotiate the price with the seller. Successfully negotiating prices saves you money. In addition, being a skilled negotiator will enable you to get better deals throughout your life, so investing in a book or course on how to negotiate makes sense.

Likewise, when you get hired at a new job, you can often negotiate your salary or hourly wage, and being a good negotiator means you'll be able to earn more money. On top of that, if you run a business or have a side hustle where you sell services to other, having negotiation skill will enable you to sell higher-ticket offers to clients, which means more income for you.

Since negotiating is something that both helps you save money and make more money, you can see how this skill will help you build wealth and is an important skill to pick up in your 20s.

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12. Save Money For The Future

Many Americans in their 20s are focused on keeping up with the Joneses. It's a common feeling to want to look rich, even if your income can't support it.

But, while many Americans are overspending while in their 20s, you can go out of your way to save as much money as possible. Your 20s is the perfect time to start investing as you have much time for compound interest to work its magic.

Here's an interesting example:

Assuming an 8% annual ROI, which is about average for investing in index funds in the stock market, every $50 that you invest at age 25 would grow to $1,086.23 in 40 years, when you turned age 65.

So, as a 20-something person, think about all of the things you spend $50 on and ask yourself if you really need to spend on them. Because each time you spend $50 at 25, you potentially cost yourself just over $1,000 at age 65. This shows how important saving money is.

Finding ways to make saving money fun promotes better savings habits. This could be as simple as rewarding yourself with something nice every time you save a certain amount of money.

13. Invest in Yourself

Investing in yourself is the most important investment you can make. This includes investing in:

  • Your education: Educating yourself opens the door to more opportunities in life where you can earn more money. Becoming an expert in a niche that pays well will create more income for you and give you a financially fuller life.
  • Your health: Better health means fewer visits to the doctor, dentist, or other specialists. Fewer visits mean less money spent on care. Whether you go to a gym or workout from home, keep yourself in tip-top shape as you'll live longer and more comfortably.
  • Your relationships: Whether friends, family, romance, or business colleagues – invest in your relationships with others as this will bring you to new places in life.
  • Your happiness: A happier person can think more clearly, be happier with how they look, have better relationships with others, and enjoy life more. These things lead to more opportunities, and opportunities are often places where you can grow your wealth.

14. Invest in the Stock Market

The stock market is one of the best places to invest your money. There are many ways to invest in the stock market and build wealth in your 20s. As mentioned earlier, some ways include investing in:

  • Index funds
  • Mutual funds
  • Individual stocks
  • Bonds
  • Advanced strategies such as options

Open an account with M1 Finance to get started. You can use Robo advisors to automatically invest your money, saving you a lot of the worry of figuring out which investments to choose.

A typical investment strategy is called Dollar Cost Averaging. This is when you invest the same amount of money in the same funds or stocks weekly, biweekly, or monthly. When you do this, you'll buy the same stocks at varying prices, which will allow you to buy stocks at a discount when the market is down.

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15. Invest in Real Estate

Investing in rental properties is a fantastic way to build wealth in your 20s and for years to come. Rental properties serve a dual purpose in that you can build passive income by collecting rent and selling your rental properties years later, and collecting on the appreciation.

It may seem daunting to be able to afford real estate in your 20s, but through the site Fundrise, you can invest in a real estate portfolio with as little as $10. In addition, Fundrise is an excellent way to own partial shares in large real estate projects. You'll earn from appreciation as well as quarterly dividends, which are paid out from property rent.

Use our Fundrise link, and you'll have the first 90 days of fees waived.

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16. Invest in Peer-to-Peer Lending

Peer-to-Peer (P2P) lending involves lending money to others and collecting principal and interest each month. You can use a site like Prosper to get involved in this form of investing.

On Prosper, borrowers request money for various things such as paying off credit cards, consolidating debt, starting a new business, medical debt, and more. You can loan as little as $25 towards the total amount that the borrower is requesting, and you'll earn your share of principal and interest back whenever the borrower makes a loan payment.

Interest rates on loans on Prosper vary greatly; generally as low as 8% or lower to as high as 24% or higher. In addition, there are options to automatically invest based on the criteria you provide, as you'll have some access to each borrower's credit profile.

P2P lending is a great alternate way of investing if you're looking to diversify and build wealth in your 20s outside of the stock market or real estate.

If you're thinking about investing in peer-to-peer lending, check out this article.

17. Continue to Acquire Assets

To build your wealth at any age, focus on acquiring assets, especially ones that either appreciate or pay you regularly, or both. Get in good investing habits by taking as much of your spare money as you can and using it to acquire assets such as:

  • Stocks and bonds
  • Real Estate
  • Other people's debt (P2P lending)
  • Art and other tangible assets that appreciate over time
  • Collectibles
  • Businesses (your own or investing in others')

Assets add to your net worth and provide sources of passive income, both of which will continually grow your wealth throughout your lifetime.

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18. Avoid Acquiring Liabilities

As you aim to acquire assets, you'll simultaneously want to avoid acquiring liabilities, as this decreases your net worth and your total wealth. Liabilities include things such as:

  • Auto loans
  • Student Loans
  • Credit card debt
  • Personal loans
  • Mortgages – although it can be worthwhile to invest your money versus paying off your mortgage early, depending on the APR of your mortgage.

Other things that aren't directly liabilities but could be considered working against you are assets that end up costing you money to maintain, such as having a luxury car that you drive periodically for fun. That said, it's okay to buy something nice for yourself here and there.

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19. Do Things You're Good At

Find ways to build wealth in your 20s by focusing on things you're good at. Think of skills you've acquired throughout your youth and determine how you can apply those in the adult world in which will make you money.

If you become a business owner, one thing you'll learn is to focus on your strengths and hire people to do things you're not good at. For example, if numbers aren't your thing, you might hire someone to create spreadsheets for you that give a financial picture of different aspects of your business.

20. Weigh in Passion Versus Opportunity

Some people will tell you to follow your passion, and others will tell you to follow opportunities. But, in the end, you need to balance finding something that you're content doing that also makes you enough money to sustain the lifestyle you want.

One recommendation is to build wealth in your 20s by having a high-paying job or business, even if it doesn't necessarily make you happy. Then, once you've acquired a fair share of wealth, transition to something that you're more passionate about and use your acquired money to fund it.

21. Start a Business

Your 20s is a perfect time to start a business as you can take more risks if a venture idea fails. Many successful business people fail one or more times before they create a successful, profitable business.

Here are some business ideas that you can start in your 20s in order to build wealth:

This is a simple list, and there are so many business ideas out there that you can earn a living doing.

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22. Join the Hustle Culture

Perhaps running a full-time business isn't your forte. Instead, one way to build wealth in your 20s is to have a side hustle that you do when you're not working.

Assuming your full-time job covers all of your living expenses, you can use a side hustle to fund extravagant vacations, fun times around where you live, or you can use the money to push your wealth higher by investing it. You can even do some side hustles from bed.

Imagine that you make $4,000 per month from your full-time job. Now imagine that you add an additional $400 per month from your side hustles. You've essentially now given yourself a 10% raise since you're earning 10% more income from that side hustle that you do in your spare time.

23. Leverage Insurance

Insurance protects you and your loved ones from loss. Having adequate health insurance cushions you if you get really sick or end up in the hospital needing emergency surgery.

Likewise, having life insurance protects your family if you pass away suddenly. If your spouse also brings in significant income, then their life insurance protects you and your children if they pass away unexpectedly as well.

Similarly, having adequate homeowner's and auto insurance protects you if something happens to your home or car. Many people overpay for auto insurance and The Zebra, an insurance comparison site, estimates that the average American can save $500 by spending a few minutes filling out some information for free. Check out The Zebra with this link.

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24. Find a Financial Mentor

A financial mentor is someone who can teach you more about finances. With their help, you can learn more ways to build wealth in your 20s, using knowledge from someone who has amassed much wealth themselves.

Financial mentors may be extended family members, local business owners, friends or friends of friends, or simply people you meet when you network at places like college or work conventions.

25. Read Books About Finance

Reading about wealth-building strategies increases your ability to generate wealth in your 20s because you understand more about how money works. Understanding how money works lets you formulate strategies on how to make more money. You'll also start to appreciate money more, which means you'll spend less of it.

Head over to the Clean Cut Finance Resources page to read our recommended books.

Wrapping It Up

In this article, we discussed the many ways to build wealth in your 20s. Your 20s are a fantastic time to grow your wealth as you have decades of time for compound interest to work its magic.

We mentioned many ways to invest in this article, which is a good way to grow money from money you already have. If you have money that you want to grow further, check out this article on things you can do with $10,000. If you don't have $10,000 yet, you can invest $100 or $1,000 as well.

What are ways that you grow your wealth?