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4 Financial Habits to Form in Your 20s

Wealth building is something that is better started as soon as possible. And that is why the most lucrative and practical habit you can learn while you’re in your 20s is learning how to manage your finances.  

Let’s face it: money runs the world whether we like it or not. Everyone agrees it’s not a good position to be broke. But financial literacy and being money-wise, in general, is never taught formally in schools. It’s not surprising, therefore, that so many 20-somethings fail to make smart money decisions early on.  

That is not to say that it’s too late for you to learn these habits if you’re in your 30s or more. But if you are a 20-something yourself, you have more to gain if you start now. Here are the top finance habits you will benefit from learning in your 20s.  

Learning how to budget  

Budgeting is no more than money awareness. Budgeting will make you conscious of how much resources you have in order to survive and do what you do preferably without risking going into debt. Budgeting means tracking where your money goes, allocating expenses, and sticking to these commitments.  

The most popular budgeting strategies are:  

  • The 50/20/30 Method - it means 50% of your after-tax income goes to paying your needs, 20% goes to savings, and 30% goes to your wants.  
  • Pay Yourself First Method - this budget method prioritizes savings and means automatically allocating a certain amount of money per month to your savings account. Then, you can do with the rest what you want. This strategy is best done using automatic money transfer tools so that your money can be saved before you even see it and be tempted to spend it.

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  • Zero-Based Budget - if you have to deal with unpredictable expenses or unexpected grace, or simply want to be very specific with your money, a zero-based budget is a strategy to explore. It means putting every dollar to work so that no money is left afterward. This means you are freer to spend your money how you want — you can put more on savings this month and maybe cut down on your excessive hobby-spending, for example. This strategy means you need to justify your spending every month and really have to think about where your money goes on a regular basis. The beauty of this strategy is in its flexibility. 
  • Envelope Budget – start by making a list of all your expenses, and then write each expense on a separate cash envelope, like these. You need to decide how much money you want to allocate to each envelope. When you've used up all the money allocated in an envelope, you'll need to wait until the next month to spend in that specific budget category again. If you still have money in an envelope by the end of the month, you can do the following:  
    • Use that remaining money for that envelope’s budget for next month  
    • Use that fund for a different envelope  
    • Put that money into your savings

If you’re not used to budgeting, it’s normal to go over budget (or underspend) the first few months. The trick is to use automatic bank transfers so your money doesn’t sit in a place where you will be tempted to dip into it. And no matter what, prioritize your savings as much as possible. 

Related: 80 Side Hustles to Make Extra Money in 2023

Doing your taxes correctly  

Understanding how to do your tax return is a premium skill. Failure to file your taxes correctly can only be costly — it can either result in penalties or you paying more than you should. Deliberate fraud can also result in criminal charges.  

As soon as you start earning, it’s your responsibility to know how to file your taxes correctly. It’s no easy matter; if you want to do it right, make sure you have proper guidance from either a professional or from extensive online but reputable sources.   

Don’t worry. There’s a first-time for everybody. That’s why it’s easy to find guides like this to help beginners like you navigate the process. But before you begin, it might be helpful to understand the flow of a tax return first.  

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Living within your means  

I know. It’s hard enough to enjoy one’s 20s with a twentysomething’s salary. How much more with these self-imposed limits?  

Part of growing up is learning to control your impulses. The older you get, the harder it is to learn. That is why you need serious practice as soon as possible. And what’s more challenging to your self-control than staying on budget?  

While it may sometimes be the case, living within your means doesn’t always have to mean never spending on the things you want whether that be gadgets or clothes or books or games! The secret is to be intentional with your purchases.  

Let’s say you love clothes. Instead of spending 200 dollars a month on fast-fashion pieces, consider buying timeless, high-quality pieces that will look good for a long time.  

If you love books, try to find your favorite titles from second-hand online shops.  

If you have a hobby that is starting to cost you, try to find a side hustle that can finance that hobby. Or even better, find a way to turn that hobby into a profitable business — one that can probably supplant your job in the future.  

Yes, living within one’s means can sometimes feel like a sacrifice but is it really if you’re the one who’s going to benefit anyway?  

Learning how to invest  

Nobody makes it to the Forbes 500 with their salary only. If you want to not work all your life and actually take charge of your time as soon as possible, investing your resources is a good way to secure your money for the long term so that you won’t need to worry about your financial future.  

There are many ways to dip your toes into investing. But the earlier you start, the more time you have to learn from your mistakes, get a good grip on how certain things work, and of course, more time to grow your money. Get started with setting up an individual IRA account or if you have more money to spare, explore real estate investments as early as now.

Final Word

An advice is only as good as you make of it. Financial habits when not learned young can be tough to learn in maturity. After all, we are creatures of our ways. So, if you’re someone who struggles with money management, now is the best time to decide to take the reigns.

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Related: 80 Side Hustles to Make Extra Money in 2023

References 

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