Your 20s are a wild ride. You start them little more than a kid and the decade that follows shapes the trajectory of your life — including your finances. No pressure or anything.

Most of us who come through on the other side learned from those experiences in our 20s and now wish we could have done some things differently, especially as they relate to money habits.

Here’s the real deal: You don’t have to amass a fortune right now. But if you can establish a few key financial habits in your 20s, you’ll lay the groundwork for a financially stable life. Here’s 5 that will change your life:

1. Live Below Your Means

The key to financial success comes down to one crucial habit: Living below your means. It’s pretty simple, but almost no one does it. If you want to join the elite club, all you need to do is spend less than you earn. 

Living below your means gets a bad rap because people don’t like to go without. The key is finding ways to spend less without sacrificing experience or quality.

2. Learn How to Budget

Spending less than you earn is a lot easier when you have a plan for your money. That’s all a budget is.

People get scared of the big bad B word for two reasons:

  • They think it means depriving themselves
  • They’re afraid it’s too much work

Good news: Both ideas are wrong. A budget isn’t restrictive. It’s freeing! When you have a plan for your money, you spend it on things that matter instead of wasting it on things that don’t.

And with so many user-friendly budget apps on the market, you can build a budget and track your spending effortlessly. 

No more excuses. Set aside an hour to make a budget. Your future self will thank you (as will your savings and retirement accounts). 

3. Develop a Savings Mentality

Remember how we talked about budgeting for the things that matter? Well, saving matters. When you spend less than you earn, there’s room in the budget for regular savings. 

A savings cushion means you have an emergency fund to fall back on when an unexpected expense comes knocking on your door. Having money available means you don’t have to carry a credit card balance or get a payday loan and pay outrageous interest rates.

A regular savings habit helps you work toward goals like an epic vacation or buying your first home. When you have extra cash, you can live the life you want.

How do you save money? The answer remains the same. You’ve got to build a budget and spend less than you earn.

4. Build Credit Wisely

Carrying high-interest debt is a big no-no, but building credit through responsible use is a smart move in your 20s. 

Bad credit and its ugly cousin, no credit, are major barriers to securing home or auto financing, a cell phone plan, and lower insurance rates with some companies. Some companies will approve people with less-than-stellar credit, but they will likely charge a higher interest rate and sometimes a hefty deposit. 

Using a credit card and paying it off in full every month is a great way to build credit wisely over time. If you never carry a balance, you’ll never pay interest. Simply set up an autopay so that you never forget. Not to mention that credit cards earn cash back! More on that below.  

5. Start Investing as Soon as Possible

When it comes to investing, time is your best friend. I wish I had understood better how time and compound interest worked together when I was in my 20s. 

What is compound interest? Basically, it’s when you earn interest on interest over and over and your money eventually blows up. Pretty sure that’s the official definition. 

The younger you start investing, the sooner (and longer) your money will earn interest and the more it will grow. Trust me, you want compound interest working for you, stat! 

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