6 Things You Should Do With Your Money in Your 20s

charlie_imageThe last semester of college, a moment in quantitative methods class changed my life. That day, ears perked up when the professor said, “What if I told you that you could become millionaires by only investing from 22 to 30, and never invest another cent?”

A lot of the students laughed, but the professor said he was serious. And he wasn’t talking about a get-rich-quick scheme or day trading. 


Over the next 30 minutes he laid out how if we invested $500 per month from ages 22 to 30 in the S&P 500 and earned 12 percent per year, then we’d have $6 million in the bank by the time we were 65 . I couldn’t believe it! I was SO going to do this!

It is important to save and invest money in your 20’s more than at any other age. The power of compounding interest is at its greatest in your 20s.

With that said, here are a few ideas to do with your money in your 20s.

1. Pinch Every Penny

Your ability to save money affects your overall financial outlook more than any annual raise ever will. Contrary to what most people think, it’s not about how much money you can make, but about your ability to save. A few pennies here and there add up, and married with the power of compounding, those pennies have the greatest power in your 20s. So don’t be like everyone else out of college: Bypass the flashy car, the newest phone, and the biggest flat-screen TV.

2. Start a Small Business

If there is any time to take a risk, it’s your 20s, when your financial responsibilities and commitments are typically the smallest. One great example of having an entrepreneurial spirit is this 14-year-old girl who bought a house and appeared on “The Ellen DeGeneres Show.”

3. Pay Off Debt

The more debt you have in your 20s, the less money you have earning you interest. The power of compounding works against you and in favor of your bank or mortgage company. Pay off your smallest debt first. Then, when it’s done, roll that payment to the next-smallest debt. 

4. Invest in a Good, Low-Cost Mutual Fund

Vanguard offers a lot of quality index funds that will help diversify your money, and start getting your money working for you. 

5. Go Back to School

In The Game of Life, you choose either to go straight into working or to college first. Ever notice how it’s almost impossible to win the game without going to college? The same is true in real life. If you invest in furthering your education, it will have long-term effects on your earning potential and ability to save more. Think about getting your master’s or finishing your undergrad.

6. Reward Yourself

Life isn’t about sitting at home eating PB&J on a Saturday night with no furniture or lights on (because that’d be too expensive). Live a little! Reward yourself once you get to certain savings levels. Whatever your goal is, write it down and make it visible daily. This will help you to have something to strive for and remind you that your 20s aren’t all about sacrifices.

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9 comments

  1. The $500 per month savings from the first paragraph covers a multitude of sins. You could live the life of a brazen consumer from age 30 on and still be fine had you just saved that money.

    Time lost is lost forever. I wish I could smack 22 year old me in the face and make him realize. Oh well, 32 year old me got it.

  2. #2 is a tough one. I left my corporate gig and started a biz at 28. Long story short, over the next 3 years I ended up running through all my savings and taking on more debt to keep it going. Closed it down after the cash dried up and sales slowed.

    My advice to someone who wants to start a business is to go in slow. Test the market before jumping 100% in. Try to sell it before you structure it. And then triple the amount of money you think you’ll need. Big difference between starting a business and buying a house.

  3. Great advice Charlie! I wish I had invested more in my 20’s – I really didn’t start until I was 31. Funny, I had a professor do this same thing with a maximum contribution to a Roth IRA which at the time wasn’t a lot but I just thought, “Wow, that is cool” but never actually did it.

  4. I didn’t even think about investing until I was in my late 20’s (just a few years ago). I get angry when I think about all the money I wasted instead of investing for retirement.

    Right now, I’m investing just enough through my employer to take advantage of their matching program. I’d invest more, but I’m trying to focus on #3. I’ve got student loans to take care of.

  5. I think the idea of saving your money is the most important because the earlier your save/invest, the more money you’ll have gathered at the age of retirement through capital gains. Of course, that means you can’t be a spend thrift in your 20s (you may have to stall your plans to travel the world or buy a cool car) but you get to spend it all later and you’ll have a stress-free requirement.

    If saving isn’t something you wish to start at this point, the best thing is to spend the money on ‘experiences’ rather than ‘products’, and memorable experiences don’t cost money.

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