This article may contain affiliate links, which means we may receive a small commission for your click. We only recommend products that we trust. Read more here.
When you're in your 20s, you may not yet fully appreciate the benefits of having wealth. Having wealth when you're in your 20s may feel far away and unattainable, but the truth is, building wealth in your 20s is the best way to lay the groundwork for a more prosperous future. Young people are in the perfect position for building wealth because when you focus on generating money when you're young, compound interest is on your side.
Let's jump in.
Table of Contents
1. Set Wealth Goals and Make a Plan
You've decided that you want to start building wealth while you're in your 20s, so the first thing to do is create some wealth-related goals. These goals can revolve around:
- How much money do you want to accumulate?
- How much time will you attempt to accumulate this amount of money?
- What strategies will you employ to obtain your future wealth?
For example, let's say that one of your wealth goals is to have a net worth of one million dollars in the next ten years. You might make goals to hustle hard to maximize your income and invest 70% of that income, leaving 30% for living expenses and activities with friends and family.
After you create your goals, you'll want to come up with a plan. Your plan includes the “how” of how you will get there. For example, you might choose to start an affiliate marketing website and attempt to grow your site to multiple 6-digits in the next ten years, which will give you enough money to reach your one million dollar net worth goal.
2. Create a Budget and Track Your Spending
You may never have had to seriously budget and track your spending, but when it comes to building wealth, it pays to know where all of your money is going.
Budgeting your money will allow you to know how much money is coming in each month and how much is going out. You'll also know how much each expense is individually. Once you have this information, it's time to start tracking how that money has been spent so that you can make adjustments accordingly.
For example, assume you spend $200 every weekend on miscellaneous entertainment, such as eating out, catching a movie, or hitting up a club. While it's perfectly fine to have fun, you decide that spending $10,400 per year on this isn't helping you build wealth, so you cut your entertainment budget in half and invest the $5,200 per year that you're now saving.
3. Get Into Good Savings Habits
Speaking of tracking your spending, getting into good savings habits will help you build wealth in your 20s. Here are some good savings habits to consider:
- Automatically transfer a portion of each paycheck to savings.
- Save or invest all bonuses.
- Save on purchases by shopping around for deals.
- Sleep on it before buying something you think you want.
- Shop for used cars instead of new ones.
- Use cash when possible, as it'll cut back on how much you spend.
- Bring your own lunch to work instead of buying lunch daily.
- Make a game out of saving money so to have fun in doing it.
Having good savings habits will get you into a wealthy mindset.
4. Minimize Credit Card Debt
Pay off all of your credit cards at the end of each month. Only use your credit cards when you have the money to pay whatever it is you're buying.
Credit card debt is one of the worst things you can have when it comes to building wealth. Interest payments add up fast, and they begin to eat away at your wealth.
Credit cards can be a good thing, and they're necessary for certain purchases, such as when you travel, but using them to buy small things like food or coffee on a daily basis is how people get into trouble.
5. Pay Off Existing Debt and Stay Out of Debt
To build wealth in your 20s, focus on paying off your debt. This includes credit cards, as mentioned above, as well as auto loans, personal loans, student loans, and so on. From there, stay out of debt by only buying things that you can afford.
With that in mind, there may be things that you buy that having debt makes sense, such as when you buy a house or if you invest in a business that will make you money in the long run.
6. Build an Emergency Fund
Before diving into investing, it pays to have an emergency fund which consists of three to six months' worth of living expenses. Your emergency fund should be liquid, meaning it can easily be accessed. That's why it's best stored in a savings account, such as a CIT Bank Savings Builder account.
Unexpected events that your emergency fund covers include:
- Your car breaking down
- Medical bills, hospital visits, or a doctor's visit
- A job loss
If you ever find yourself without an emergency fund when an unexpected event happens, it can be devastating if you have no outside help from a friend or family member. This means you'll end up going into debt to cover the expenses, which will only make it more difficult to build wealth.
Instead, open a savings account and start stashing money in it every paycheck until you're sufficiently covered.
7. Maximize Your Income
A common trait of the wealthy is that when they're building wealth, they're frequently trying to maximize their income. There are different ways you can do this, like getting a second job or a side hustle.
Freelancing is one of the best ways to maximize your income as it's something you can do on top of your job. This article outlines 40+ side hustle ideas that you can do to increase your income.
Additionally, find ways to create passive income. Passive income is income you earn without doing a minimal amount of, or any, additional work once it's set up.
8. Develop High-Value Skills
You can create more income and wealth for yourself in your 20s by developing high-value skills. When you make yourself more valuable to your company, you will make more money. You'll also be able to make more money doing freelance work or starting your own business if you have highly valuable skills.
Developing high-value skills isn't as hard as it might sound, as many resources are available to help you learn. For example, you can read books, take online courses, or even watch YouTube videos.
9. Change Jobs When It Makes Sense
For the vast majority of workers, job loyalty will not earn you the most amount of money. Instead, it often makes sense to stay at a company for a few years and then hop to another, higher-paying company.
You'll gain a lot of experience in your 20s, and it makes sense to use that experience to find better-paying jobs whenever possible.
10. Look For Opportunities
Always be on the lookout for opportunities. Wealthy people have financial success from investing in good opportunities. In addition, they often take calculated risks to become successful.
For example, billionaires like Bill Gates and Richard Branson both took risks when they started their own companies. Their investments paid off in the form of how much money these two men made for themselves and how many investors that followed them through their ventures profited as well.
11. Learn to Invest and Boost Your Retirement Fund
Learning to invest when you're in your 20s is one of the surest ways to grow wealth. When you're in your 20s, you have decades for compound interest to make you a lot of money.
For example, if you invested $10,000 a year from the time you are 20 to the time you're 30 while earning an 8% ROI each year, and then at 30 you never invested ever again, you'd have over $1.4 million when you turned 60.
Likewise, if you were 30 and invested $10,000 for 30 years at the same 8% ROI, you'd only have $1.13 million.
This demonstrates how powerful it is to invest when you're as young as possible.
It makes sense to invest both in a retirement account like an IRA and a taxable brokerage account when building wealth. That way, you can maximize how much you invest while having money available before retirement and additional money available after retirement, which will be in a tax-advantaged account.
12. Obtain Income-Generating Assets
Another way to grow your wealth in your 20s is by obtaining income-generating assets. These investments produce a passive stream of revenue, like stocks, bonds, and real estate.
By building up income-generating assets, you'll start earning passive income that can be used to purchase more income-generating assets. This cycle continues, which then increases your net worth further as well as increases how much income you bring in monthly.
You can start building an income-generating stock market portfolio on M1 Finance. Additionally, for as little as $500, you can start a real estate portfolio on Fundrise, which pays quarterly dividends from the rental properties your funds acquire, and you'll earn appreciation.
13. Avoid Excess Living Expenses
One great way to build wealth in your 20s is to live a less-than-lavish lifestyle. Living a less-lavish lifestyle includes:
- Driving an inexpensive car
- Having a modest home with lower mortgage payments
- Eating out less often
- Buying things on sale
If you're able to save hundreds of dollars each month by cutting back how much money you spend on your living expenses, then this will help build wealth for the future.
The app Trim can help you cut back on your living expenses automatically. Trim negotiates your cable, internet, and phone bills, as well as medical debt, bank fees, and credit card APR. It will also help you identify and cancel subscriptions you are no longer using.
This article goes over 35+ ways to lower your living expenses, which will enable you to build wealth at any age.
14. Drive Used Cars
Buying used cars over your lifetime can save you hundreds of thousands of dollars, which can be invested to grow your wealth further.
A new car depreciates 15% to 20% of its value every year for the first five years. That means a car that you may pay $30,000 for new might be worth less than $20,000 after three years. Had you bought a 3-year-old car for $20,000, you could have saved $10,000.
Taking this further, if you stick to quality cars that have over 100k miles on them, you might pay $10,000 or less for your car, and by taking care of it, the car may last you for many years.
15. Learn From Wealthy People
Having a wealthy mentor or group of wealthy people to hang out with is an effective way to build wealth in your 20s because you'll learn how to do it successfully.
Having a mentor can help you become more skilled at how to manage money, how to invest it wisely, and how to avoid unnecessary expenses.
Pay attention to successful people around you and learn from them. They say if you're the most knowledgeable person in the room that you can't learn anything new, so hang out with people who know a lot more than you do.
16. Read Books About Wealth
There are many books about how to build wealth. Reading books about wealth is an effective way to learn how to think differently about money, which will help you build wealth of your own.
Head over to Clean Cut Finance's resources for book recommendations on building wealth.
Wrapping It Up
In your 20s, you're in a prime position to build wealth. If you start investing and building income-generating assets now while maximizing your income and minimizing your expenses, you'll be on your path to attaining the wealth that you desire.