Financial planning at any age: your 20s

Okay, here's the truth. Financial planning in your 20s is tricky. Between finding success in your career and joining the adult world, it’s natural to feel like you’re still figuring out how best to navigate your life path. 

Although it might sometimes feel like a drag to start planning your finances when life is so fun and full of spending opportunities, your 20s can be a great time to get into smart money habits.

Keep reading for guidance on how to create a financial plan, and 15 tips for managing your finances in your 20s.

What is financial planning?

Here's the tea. If you want to be the financial G.O.A.T., you must first learn the art of financial planning. That means resisting those urges to celebrate your financial freedom with things like endless takeout dinners, nights out, and pricey subscriptions for everything—and instead, think ahead.

Being careful with cash doesn't mean you can't have any of the above, it just means you plan how much you spend in advance and live within your means.

In our hyper-consumer-driven society, that's easier said than done, so don't worry if you haven't mastered it just yet. With some practice, trial and error, and knowledge of how to make money work, you can lay the groundwork to help meet some of your money goals by your 30s.

Financial planning in your 20s is all about learning how to budget and manage debt. It's time to decide how bougie you want your lifestyle to be and put plans in place for earning and saving.

Begin building retirement and emergency funds, but keep in mind that you'll probably be saving for a home, car, or other big-ticket items in your 20s.

How to create a financial plan

It's easier to make something happen if you have a plan rather than aimlessly drift and hope to achieve it. Although it's smart to be flexible and roll with changes as they come, having a framework to help you stay on track is essential.

Think of it as your personal business plan. First, work out how much dough you currently have coming in and rolling out. Use your career goals and honestly measure how hard you're willing to work to make your ambitions a reality. Then, plan how much you want to spend and save in the short, medium, and long term.

The result? Future you will be proud of how awesomely you planned your finances in your 20s. And, you may even have a nice home, car, and any other sweet expensive things only people who plan their finances and save money can afford.

In the short term, you might have a less flashy lifestyle and spend less on clothes than other people your age, but it's totally worth it.

15 top tips for financial planning in your 20s

Below are 15 pointers with the most important financial advice for 20- to 30-year-olds.

1. Think about future you

The foundation of amazing financial planning is having a future-focused mindset. Without learning how to plan and take care of your future self, you won't be able to get into the habits of saving and resisting spending urges.

Now’s the time to get serious about considering how your choices now can impact your financial future.

2. Choose a lifestyle

Deciding on the type of lifestyle you want to live isn't just about fancy vacations, designer shoes, and huge TVs. Perhaps the most important consideration is whether you want to be a homeowner or renter. Homeowners need to think about fees, furniture, maintenance, insurance, taxes, and their mortgage, while renting is often simpler.

On the other hand, renters aren't making a property investment, so the money they spend doesn't have any return. Your 20s is the time to make these big decisions and plan accordingly in terms of your career and spending and saving habits.

3. Learn how money works

Having a financial plan without understanding finance is a rookie mistake. Because we live in a culture that encourages you to spend, it's best to put measures in place so you can resist impulsive spending.

You don't need to become Warren Buffett, but watch some YouTube videos, listen to some podcasts, and read a few blog posts to get yourself up to speed on the economy. Once you know what you're working with, you can manage money from an empowered position. 

There are five elements to personal finance, and we'd recommend taking a deeper dive into each one:

• Earning

• Spending

• Saving

• Investing

• Protecting

4. Hone personal finance skills

Now that you've gotten up to speed with an understanding of the economy, it's time to go zen and look inward. Few people are born brilliant with budgeting. Even if you've been splashing the cash without a care in the world until now, you can build the skills necessary to improve. 

Let's look at some examples of money skills to master before 30:

• Budgeting

• Negotiating

• Paying yourself first

• Separating essential spending from desired spending

• Investing where possible

• Looking for deals

• Reusing items until they no longer function

• Planning spending in advance

• Learning to say “no”

• Using your money efficiently

• Being content with what you have

5. Secure an income 

In your 20s, you're still learning who you are and what you want from life. But it's also the most critical time to start preparing your career. Even if you're not yet in your dream job, you should make the most of any opportunities and put 100% into your work. 

Getting a promotion while you're young will help you in the future, even if it's not in your desired field. Many workplace skills are transferable, and like anything, the key to future success is good habits. Resist the urge to take it easy while you're young, because if you get too comfortable coasting along, you might end up stuck that way.

When choosing jobs, be sure to look at employer benefits. Health insurance or savings on healthcare, matching retirement fund contributions, stock options, and other types of insurance plans are particularly useful. 

6. Develop a marketable side hustle

Unless you live under a rock, you'll have noticed the world is changing fast. One of the biggest shifts in the past decade or so has happened thanks to tech and the internet—jobs. Some positions are being replaced by automation and software, while new opportunities for creatives and entrepreneurs are popping up left, right, and center.

Many people develop a creative or tech-based skill alongside employment in their 20s. Once you're good enough at it, you can market it online and make money from it—and if you get really good, you can make enough to help secure your financial future. 

7. Focus on career growth and networking

While working smart and hard are necessary for career growth, networking is another crucial element. Even if you love your current job, build a LinkedIn presence and find networking opportunities for the future. The relationships you build in your 20s can be abundant and strong, and you never know where they might lead in the future.  

8. Create a personal budget

Once you've got an income, you should create a budget. It's not easy to budget, but giving up on it is unfortunately very easy. In the early days (or first year) of trying to budget, you might go off course. Instead of taking setbacks as signs that you can't do it, learn from your mistakes and keep trying. 

With practice and persistence, it will pay off, and you'll be proud of yourself for learning how to budget when you reach your 30s, 40s, and upwards. 

9. Decide on priorities for saving

Everyone has their own personal goals and vision for the future, which means everyone has different priorities. Emergency and retirement funds should be non-negotiable, but you'll need to choose other savings areas to match your goals.

Whether you want to save up for a deposit on a property, stick to renting, or allocate money to extravagant future purchases is up to you.  

10. Set an emergency fund aside

An emergency fund is a must-have in case of major repairs, medical bills, or any other unforeseen expense. If you don't have an emergency fund, these types of costs can eat into your income and likely leave you short at the end of the month.

11. Get started with a retirement fund

Your 20s is the time you'll pay the least into your retirement fund because you're probably still in the process of building a life for yourself. However, that doesn't mean you should delay in understanding its importance. Even investing a small percentage of your income in a retirement fund while you're young will put you ahead of the crowd in terms of money management.

12. Build a debt plan 

Most young people have a certain amount of debt, and not all debt is bad. However, being in the habit of borrowing more than you can afford isn’t a good habit to get into. Automate repayments wherever possible to take advantage of lower interest rates, pay down your highest-rate cards first, and save the extra money you have after a debt is paid off. 

13. Avoid impulse shopping

We all know how good it feels to return from a trip with two hands full of shopping bags, but what about when you look at your bank balance the next day? Going out for a few essential items and coming home with half the store is a problem for many people. With deals slamming into your inbox faster than Melvin Gordon busts through an opponent's defense, online shopping makes it even harder to curb spending.

That's why budgeting and sticking to your budget are the most important pieces of financial advice for your 20s. 

14. Choose your besties wisely  

If you've ever noticed how friends pick up each other's habits and phrases, you understand why it's important to choose your BFFs wisely. While it might be fun to hang out with people who spend a lot of money on going out, having a great time, and other luxuries, it’s necessary to take a step back and think whether this path is good for you long term.

These individuals might be getting into a quagmire of debt or have extremely rich parents who fund their lifestyles. People who are looking to be sensible with money and live an independent life free from the worries of financial struggle tend to do best when they hang out with like-minded folks. 

15. Take pride in being independent

Even if you've still got access to the bank of mom and dad, your 20s may be the time to fly the nest and gain independence. The sense of purpose, meaning, and achievement that comes from being fully financially fledged absolutely slaps.

If you get into the habit of using your parents as an emergency fund, you won't have the same sense of freedom and stability. Plus, they've been cool enough to take care of you your whole life, so why not pay them back by showing them what a great job they did at raising you to be self-sufficient?

How to manage your finances in your 20s: the bottom line

Managing money in your 20s involves getting into the financial habits required to reach your goals. Don't be too hard on yourself for making mistakes or give up because it's challenging—everything is challenging at first. In fact, it's generally easier to form these habits in your 20s.

Not only that...by developing these skills early, you won't have to worry about them down the line. So once you're 30, 40, and older, it'll feel like you were born financially savvy.

Instead of asking yourself “what now?”, ask yourself “what’s next?” Whether it’s that next chapter, next step, or next goal —make it happen by making the most out of your money with a Varo Bank Account, a Varo Savings Account, and a Varo Believe Credit Card for starting your credit-building journey.¹