To listen to the media, you may think that young people tend to disregard their financial future in favour of YOLO’ing their way through life. The opposite is often true, but with incomes stagnating, huge inflationary pressure and house prices skyrocketing over the past decade. If you can’t win the game, why even try right? Wrong!
Right now, it might feel like you’ll never be able to reach your financial goals or have the ability to retire never mind retire early in your 40s. But that doesn’t mean you can’t start to build wealth in your 20s and if you work hard at it, then 40 is completely achievable.
Is it possible to build wealth in your 20s?
As someone in their 20s you have the greatest advantage to build wealth – Time. The fast that you are reading this article shows that you are focused on your future. I hadn’t heard of financial independence until my 30s. You’re doing great and you will continue to do so!
It’s hard to overstate the importance of starting to build wealth early. To help you get moving, we’ve put together a list of 10 great ways to build wealth in your 20s. Strategies you can implement and take action on today.
Let’s get started!
10 ways to build wealth in your 20s
- Create a budget
- Grow your income
- Automate your savings
- Boost your pension contributions
- Pay off debt (and stay out of debt)
- Invest in yourself
- Accumulate assets, not things
- Don’t let lifestyle inflation creep in
- Fail Forward
Find a suitable circle of influence
1. Create a budget
A budget is the cornerstone of financial independence. It doesn’t matter how much you earn. If you overspend each month, you’ll never be able to build wealth.
A budget is forward looking. It’s what you will spend next week, month or year. Don’t dwell on the past budgeting mistakes, but let’s address this and move forward together.
Detail all your income streams and expected spending for the month ahead. First you need to understand where your money goes each month. If you are overspending, stop this immediately.
Your budget is a plan. Stick to it as closely as possible, but don’t make it too strict that it sets you up for failure.
Think of it like a diet. If you go too rigid, you’ll fall off the wagon and eat 5 donuts in a row (speaking from personal experience). If there’s room in the diet for the occasional treat, it makes sticking to the plan much easier for a longer period of time.
2. Grow your income
If you’re in your 20s and employed, work hard, be dependable, determined and climb that career ladder. If you need to change jobs a few times, that’s no longer a taboo point for prospective employers.
The safest way to increase your income is with your current or future employment. It’s not sexy, but a 9-5 income with careful budgeting, helps you build wealth over the long term.
Ask for that raise, and justify why you deserve it. Hunt out and achieve bonus opportunities. If there’s a promotion opportunity, go for it. What have you to lose?
It’s often the case that people look outside their current employment for opportunities, but it is often the easiest route.
Start a side hustle
However, you’re in your 20s and you’re willing to work hard.
You may already have a side hustle in mind and that’s great. If not, our list of side hustle ideas is a great starting point. You could become a freelance designer, a delivery driver or start your own private label brand on Amazon.
Start a business
Back in the olden days, when I was in my 20s (2002-2012) side hustles weren’t a thing. Maybe they were and I just wasn’t aware. Anyway, I started my business at age 26. Prior to this I had 3 adult jobs. 2 in marketing and 1 in sales. I had zero experience in owning or running a business.
I had a very supportive wife. We were child-free and our budget was light. I figured out that if the worst happened and the business didn’t work out initially, I could always get a part-time job in the evenings to cover my expenses.
Starting a business is no easy feat. Be prepared to work harder than you ever have. And for a long time. I am not proud to say that my business came before family and even my own health for the longest time. However without question, a business can help you wealth in your 20s quicker than most other options.
3. Automate your savings
Saving doesn’t have to be hard. Remove the temptation to overspend by automatically diverting your money as soon as it hits your bank account.
Set up direct debits for your bills and recurring payments for your savings. This takes away the risk of making a bad financial decision when you see a positive balance in your account.
If you decide in your budget planning that you will save £100 per month into your ISA. Set up a recurring payment each month to automatically send this value to your ISA provider. Putting the money out of immediate reach means you don’t think about it and are less likely to spend it.
4. Boost your pension contributions
If your employer is offering a pension match, max this out. You get tax benefits, you get free money from your employer and you have time on your side. Saving within your pension in your 20s is the smart move.
A 25 year old who invests just £100 each month could have more than £406,825 by the age of 65, assuming an 8.5% rate of return.
A 50 year old by comparison would need to invest £1,100 per month over 15 years to achieve £401,883 by the age of 65, assuming an 8.5% rate of return.
It pays to start contributing to your pension early!
5. Pay off debt (and stay out of debt)
If you want to build wealth in your 20s and throughout your life, stay out of debt. Debt takes away from you now and in the future.
If you are in debt, pay it off as quickly as you can. There are a number of strategies to paying off debt fast including the snowball and avalanche methods.
The less debt you have, the greater opportunity you have to grow wealth. Debt works against you, where we want our money to work for us.
Want to achieve financial independence?
You could spend the next 13 years learning about personal finance and putting your knowledge into action. Or you could take my FREE 10 day mini course and weekly emails. I’ll show you exactly how to become financially independent. My only question is, whats stopping you?
6. Invest in yourself
By nurturing a mindset of life-long learning and personal growth, you will be able to advance and learn new skills long beyond your formal education.
Build skills that align with the career path you want to pursue. Having a breadth of in-demand skills not only increases your earning potential, but also increases your demand in the job market.
7. Accumulate assets, not things
Seek joy in buying and accumulating assets, rather than spending your money on things. Celebrating every asset purchase will help you stay motivated on your journey towards financial freedom.
As with your pension contributions, any assets you buy in your 20s have the potential to grow over decades through the magic of compound interest. This can build your wealth exponentially over the long term.
8. Don't let lifestyle inflation creep in
As you start to earn real income in your 20s, it can be hard to pass on the shiny objects. That feeling of missing out can wreak havoc on your financial plans. If you give into temptation.
- You don’t need a new car. You want one!
- You don’t need a bigger house. You want one!
- You don’t need to go to an Ultra All-Inclusive resort….You get the gist.
Don’t let this dissuade you from buying things that are important to you. If it fits your budget and it’s something you are genuinely happy to buy, then by all means, fill your boots.
Don’t let instant gratification win every time though.
9. Fail Forward
The fact that you are already considering building wealth in your 20s is a fantastic quality. If you’re thinking like this now, you’re setting yourself up for a fantastic future. Your far-away future goals seem distant now, but in 20 years, you’ll be delighted you took action when others didn’t. I say this from experience.
You also have the opportunity to make mistakes and you should make many. If you’re making mistakes, progressing and learning from them, you will build talents, skills and wealth that will set you on a fantastic path for the rest of your life.
A failure is only a failure if you don’t grow from it.
10. Find a suitable circle of influence
You are the average of the five people you spend the most time with. So surrounding yourself with like minded people, learning from them and getting advice from their experience. This is a great way to ensure your own success and it’s even easier today than ever.
Think of your five closest friends, colleagues or family members. This is your circle of influence. Are they focused on the same goals that you are?
Takeaways tips to build wealth in your 20s
We’ve covered a lot of ground here today and if you want to build wealth in your 20s that will last a lifetime, we’ve given you a recipe for success. It’s not an easy path, but the rewards for taking it seriously will last a lifetime. Not too seriously though, remember to have fun along the journey.
One of the questions you’re likely asking yourself is “How much money should you have saved in your 20s?” and that is a valid question for many. This is your life, so stop comparing yourself to others. The truth is, they’re not worrying or thinking about you.
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