5 Effective Money Tips You Should Know In Your 20s

Adulting is a full-time job, even more so when managing your finances as a young adult.

Understanding the language of money requires a great deal of learning, practice, and sometimes occasional setbacks.

I got into debt my first year out of college.

It was a shameful experience because I knew better. I had spent most of my college years learning the language of money — how to save, invest, and build generational wealth.

Yet here I was, eighteen months later, seated on my couch, stressed out, trying to understand how I had ended up elbow-deep in ~$15k of debt.

Reflecting on this journey, here are the 5 money lessons I learned in my 20’s.

The 5 Money Tips Learned

1. There is No Amount Too Little To Save:

Developing the habit of saving is the first step to changing/improving any financial situation.

However, there is a common misconception that only substantial amounts of money can be saved. And the small amounts left over after meeting both planned and unplanned monthly expenses are too little to make a difference.

This is not accurate.

It is the case of the famous saying that “little drops of water make a mighty ocean.” At the end of the year, the monthly savings of $100 amounts to $1,200, and the savings of $50 amounts to $600.

Every dollar matters and can make a difference.

Save what you can. You will be surprised how the little amounts you set aside for savings can accumulate substantially after a year or two.

My favorite high yield savings accounts are Capital One 360 and American Express High Yield Savings Account. I personally have been using Capital Once 360 for years and I absolutely love it!

Remember

“Little drops of water make a mighty ocean.”- Julia A. Carney.

2. Live Below Your Means

This is the foundational mantra of any wealth-building journey.

We have heard the same message repeatedly echoed by famous financial advisors, such as Dave Ramsey, Ramith Sethi, Robert Kiyosaki, Suze Orman, etc.

Well, it is true.

The mistake I made in my financial journey was disregarding this rule. Allowing my fixed expenses and unplanned monetary obligations to run unchecked.

Living below your means allows you to achieve financial stability because you must first master the art of managing your expenses.

“When you live within your means, you have more control over your future.”’

3. Invest: Compound Interest Is Real

Put your money to work by investing a subset of your savings.

A savings account will not help you build wealth.

According to Nerdwallet, the average savings account yields ~0.46% in annual interest, less than a cup of coffee, as opposed to the stock market, which yields ~8% to 10% annually.

Investing allows you to leverage compound interest, which is the interest earned on interest.

How does this work?

Let’s get into it.

A $100 invested at a 6% annual interest rate will yield $106. Compound interest kicks in when that same $106 is re-invested at the same rate to yield $112.

Now imagine investing $100 monthly with compound interest at an annual 6% interest rate for 2 years. This will amount to a whopping $2,655.

“Compound interest is the eighth wonder of the world. He who understands it earns it; he who doesn’t pays it.” — Albert Einstein

To get you started on this, my favorite brokerage accounts are Fidelity investment and Robinhood. Use my Robinhood referral link to get $5.

4. Eliminate Debt, But Not Completely

Debt is a double-edged sword. It can cripple your wealth-building journey or serve as a ladder to help you achieve your goals.

The outcome depends on the type of debt you employ — good debt vs bad debt.

Bad debt is money borrowed to purchase rapidly depreciating assets or assets for consumption, such as clothing, shoes, or vacations, that do not yield monetary returns in any way.

Good debt is money borrowed to invest in revenue-yielding sources, such as a business or real estate, that could advance your financial status.

The key is to eliminate bad debt because it will hinder your financial growth. However, you must also take the necessary steps to ensure that good debt is accessible when you are ready to take your finances to the next level.

“Good debt is a powerful tool, but bad debt can kill you.” — Robert Kiyosaki

5. Set Financial Boundaries

Your ability to say no to financial requests that do not align with your financial goals will make or break your wealth-building journey.

Reflecting on my mistakes the first few years out of college, I realized that my inability to set boundaries, because I felt guilty or obligated, contributed immensely to the amount of debt I racked up.

Money is a finite resource that will run out if not managed properly. 
Don’t get me wrong — I believe in generosity and showing up financially for friends and loved ones. However, this should not be to the detriment of your own financial health and goals. 

“Setting boundaries is an act of self-love.”- Oprah Winfrey

Helpful Resources

Burnette, M. (n.d.). What is the average savings account interest rate?. NerdWallet. https://www.nerdwallet.com/article/banking/what-is-the-average-savings-account-interest-rate

Royal, J., & O’Shea, A. (n.d.). What is the average stock market return?. NerdWallet. https://www.nerdwallet.com/article/investing/average-stock-market-return#:~:text=stock%20market%20return%3F-,The%20average%20stock%20market%20return%20is%20about%2010%25%20per%20year,power%20with%20NerdWallet%27s%20inflation%20calculator.