13 smart money moves to make in your 20s

Finally having a steady income can be exciting — sometimes a little too exciting.

It’s easy to get into financial trouble in your 20s without even realizing the potential consequences. Simply paying attention to your spending and saving habits early can make reaching financial success a whole lot easier in the long run.

It’s so easy to think “I have plenty of time to save,” but believe me, that plenty of time goes by a lot quicker than you think — and if you start now, you’ll thank yourself later. 

So when you’re just starting to get your financial life together, or starting to think about it, here’s a list of tips to help you better understand your money and how to get better spending and saving habits in place now.

13 ways to set yourself up for financial success

1. Spend less than you make

Making a habit of living on less than you make will help you reach your financial goals much quicker and easier. If you get used to this early, it will get you in the habit of saving more and spending less, allowing you to save for big purchases— such as a house or car — and put more money toward your retirement.

Spending less than you make will also help you avoid credit card debt. Using credit cards to build your credit can help prepare you for when it’s time to make one of those big purchases, but you have to make sure you’re doing it the right way. Here is a guide to understanding your credit score.

Spending less than you make requires you to pick and choose. Maybe you don’t go to every destination wedding, every group dinner or every girls’ night out. Or maybe you go to dinner, but eat before you go so you aren’t stuck with a big bill when everyone splits the check.You can have a social life without draining your wallet. Decide what’s most important to you and start saving for those things. In the long run, you’ll be glad you aren’t buried in credit card debt for tapas and hangovers you never wanted anyway.

2. Track your spending

It’s really easy to lose track of how much you’re spending when you don’t pay attention. We’ve all had that moment near the end of the month when you go to check your bank account and you’re too afraid to look… But the good news is, if budgeting isn’t your forté, there are tons of free apps and websites that will manage your finances for you and keep you on track each month. They’ll also break down your spending habits for you, and that makes it a lot easier to see where you can cut back. If you get in the habit of really understanding your spending, budgeting for the near and distant future can be a lot easier.

3. Save between 15% and 20% of your income

If you’re spending less than you make, then you should be able to start saving every month. Put some away in emergency savings — a fund you can easily access if a big unexpected expense comes up — and put the rest toward long-term goals and saving for your retirement.

The traditional rule of thumb for emergency savings is to have three to six months worth of living expenses in an account that’s easily accessible — for emergencies or situations like a job loss. When you aren’t making a whole lot of money, saving can be tough, but it’s always possible.

If you’re having trouble finding money in the budget to save, start with a small amount each month — maybe 1% – 5% — and work your way up.

4. Reduce or eliminate monthly bills

Monthly bills can quickly eat away at your paychecks, so spend some time deciding which ones you need and which ones you can live without. When you take the time to pay attention and reduce your spending, you can drastically increase your monthly cash flow — simply by making just a few easy changes.

5. Stop buying expensive coffee

That $2 (or often more) you spend on coffee every day adds up over time. If you’re buying coffee daily, making coffee at home can save you at least $50 – $60 per month — and a whole lot more over a year. There’s even a way to hack the expensive coffee machine you have at home and use cheaper brand coffee.

6. Don’t buy designer clothing at retail price

You never wear it as much as you think you will. There are so many ways now to buy designer clothing at discount prices, and seriously, no one will ever know (if you care) that you bought it on sale. Shopping at consignment shops can save you up to 90%, and that’s a lot of money back in your pocket. Check out sites like ThredUp, Gilt, Revolve and even the department store outlet sites can have some great deals.

If you like trying the clothes on first, and you’re up for a little digging, check out places like Marshalls, Nordstrom Rack and DSW for designer clothing at up to 60% savings. 

7. Sell stuff you don’t use or need

We’ve all got stuff piled up in a closet somewhere and a lot of it could make you some extra cash. Check out what other people are selling the items for on eBay and go ahead and get rid of the things you don’t use. Gently used technology, clothing, sports gear and other items you aren’t using anymore (or never did) could add up to a nice sum of money.

Plus, there are tons of apps now that make it super easy!

8. Start saving for retirement NOW

It’s so easy to think I’ll always have time to save later — but time is money, folks! The early you start saving, the more time your money has to grow — giving you a much bigger chunk of cash in the future.

And you don’t have to save a ton. Start with baby steps, increasing your contributions every month or even every six months — and the increases are so small that you won’t even notice the money missing!

When it comes to saving for retirement, your best bet is to have the money automatically deducted from your paycheck so you never even see it in your account. That way, you won’t miss it.

If you have a 401(k) at work, start saving money through automatic withdrawals each time you get paid. If your employer offers an employer match, that is essentially free money, so try to save enough to get that match.

If you’re saving nothing right now, it’s OK to start small. Clark’s preferred method is for you to start by saving one penny out of every dollar you make. That’s 1% of your income. Then every six months, step it up by 1%. In 5 years, you’ll be saving 10% for retirement and making a huge impact on your future. 

9. Understand how to use credit cards

Using credit cards wisely can help you build up a strong credit score, which will save you a whole lot of money over time by getting you better interest rates on things like a car loan, mortgage and more.

“Get a small starter credit card account. Establish some on-time payment history,” says Bruce McClary, vice president of public relations for the National Foundation for Credit Counseling. “On-time payments are the single most important factor in a credit score, so you want to make sure you are making payments on time [and] don’t miss one.”

Bottom line: Use a credit card for small purchases that you know you can pay off before the due date. The single most important thing about using a credit card is making sure that you always pay it off IN FULL (to a balance of $0) and on time every month.

10. Don’t spend all your money paying off student loans

If your student loans don’t have a high interest rate, spending all of your money to pay them off right now won’t save you a ton in the long run. It’s more important that you continue making your payments on time and put your extra money toward short-term and long-term savings.

‘There’s no need to rush with student loans. Save for retirement,” says Liz Weston, author of “Deal with Your Debt: Free Yourself from What You Owe.” “Hands down, there’s no better way to spend your money than putting it in a 401(k) or IRA.”

Plus, student loan debt isn’t considered bad debt — like credit card debt. So it’s more important that you continue making on-time payments, while you prioritize paying off credit card debt and growing your savings.

If you’re having trouble making your student loan payments, there are options to reduce the amount you owe each month — and even have your loans forgiven. Here are some options for paying off your loans, including loan forgiveness and income-based repayment programs.

If you don’t qualify for any federal programs, you may want to consider refinancing your loans. Here’s a guide on how it works and when it’s a good idea.

11. If you’re still in school or going back, find ways to save

The average class of 2016 graduate with student loans left school owing  more than $37,000 — and that doesn’t include any credit card debt (which many college students accumulate during school). And while the cost of college isn’t getting any cheaper any time soon, there are ways to get a degree without getting buried in debt.

Here are just a few of the options out there to help you save:

• Qualify for in-state tuition at an out-of-state college

• Start at a community school and transfer to a traditional four-year college (no one asks where you started, just where you graduated from)

• Employer reimbursement programs. For more details, check out Clark’s 5 ways to save money on your college degree.

• There are also several European countries where you can go to college, in English, for free. Check out a list of options here.

12. Understand your health insurance (as much as possible…)

Understanding health insurance seem like an oxymoron, but it’s important to understand at least some basics about your health insurance options in order to make sure you’re choosing the best plan that fits your needs and so your money is being spent wisely. Plus, keeping up with your health can save you a lot of money on bigger medical expenses down the road.

Check out our Health Insurance Guide for more on what you need to know.

13. Know how to protect your money & identity

Taking steps to protect your identity and your finances can save you a lot of trouble — and a whole lot of money— in the long run.

• One of the best ways to protect yourself online is to never sign in to any website that has your financial or sensitive information using free Wi-Fi (there could be criminals watching and waiting to steal your info).

• Always use different passwords for financial accounts that you don’t use for any other account.

• Here’s more on keeping your digital footprint small and secure.

• Click here to check out free programs that protect your computer (and all the personal data stored inside).

• Also, don’t hand out your Social Security number like it’s your phone number. Protect yourself by knowing where you should and shouldn’t give your Social Security number.