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10 Smart Money Moves to Make Before Turning 30

By: David Bach  |  Last Updated: January 29, 2021
Financial Expert & 10x New York Times Bestseller
IN THIS ARTICLE1. Figure out how to split up your paycheck
2. Open a retirement account and automate your contributions
3. Set up an emergency fund
4. Pay off debt
5. Set up a system to track your spending
6. Buy the insurance you need
7. Build your credit
8. Start saving for big, future purchases
9. Open an investment account
10. Invest in yourself

Your 20s are an exciting time, often accompanied with a handful of firsts: your first full-time job, and as a result, your first consistent paycheck. You might sign an apartment lease, open a credit card or buy a car for the first time. 

A lot of these firsts, though, come with a price tag. Amid the excitement of earning paychecks, you want to make sure that you’re living within your means, keeping a portion of your income and building good money habits. 

Laying a strong financial foundation in your 20s is ultimately what will set you up for long-term success. 

Make these 10 smart money moves before turning 30 and you’ll be well on your way to building lasting wealth.

1. Figure out how to split up your paycheck

Now that you have money coming in, you have to figure out what to do with it — how much to save and how much to spend.

This is where the “50-30-20 rule” of personal finance will come in handy. Here’s how it works:

  • 50% of your take-home pay goes to needs. Necessities include things like housing, food, transportation, child care and insurance.
  • 30% of your take-home pay goes to wants. This is the money that you can spend on “fun” — things like travel, entertainment, dining out and electronics.
  • 20% of your take-home pay goes to savings and debt repayment. This includes savings for retirement, your emergency fund and any big, upcoming purchases you may have, like a home or car. If you have high-interest credit card debt or student loans, use half of this money to pay down your debt and put the other half in savings.

Note that this formula is based on take-home pay, which is the income you receive after taxes and benefits have been deducted.

Figure out your monthly take-home pay and multiply it by 0.5. That’s the amount of money you can spend on housing, transportation and other needs. Then, multiply your monthly take-home pay by 0.3. That’s the amount you can spend on “wants.” Finally, multiply your take-home pay by 0.2 to see exactly how much of your paycheck should go to savings. 

You don’t have to follow this formula to a tee, but it’s a good place to start if you’re unsure of how to divvy up your paycheck. While the cost of your needs and wants may fluctuate month-to-month, try to keep your savings rate at 20% — if you can save more, even better!

2. Open a retirement account and automate your contributions

When you’re in your 20s, retirement may seem too far off to prepare for, but the longer you wait to get started, the further behind you’ll fall — and the more you’ll miss out on the benefits of compound interest, which is what can cause your wealth to snowball.

To demonstrate just how powerful starting young can be, let’s run some numbers. 

Say you want to retire with $1 million. If you start saving at age 25, you’ll have to set aside about $440 a month to reach $1 million by age 67 (assuming a 6% rate of return). If you start saving at age 35, you’ll have to set aside nearly double that amount: about $860 a month. 

You can run your own numbers using Investor.gov’s compound interest calculator.

The bottom line: The sooner you start saving, the better. 

If your company offers a 401(k) plan, make sure you’re enrolled. It’s an employer-sponsored retirement account that offers major tax benefits and makes it incredibly easy to save. Your contributions (the percentage of your income that you elect to put in your account) are automatically deducted from your paycheck, so you never even see this money. 

Plus, many employers offer a “401(k) match” and will match your contributions up to a certain amount, which is essentially free money.

If you work for a nonprofit organization, you will likely be offered a 403(b) plan, which works very similarly to a 401(k). If your company doesn’t offer a retirement plan or if you’re self-employed, you can open an individual retirement account (IRA) and still enjoy major tax breaks. 

As for how much to save, ideally, you’ll set aside 10-15% of your income in a retirement savings vehicle. That said, it’s OK to start small and gradually get to where you need to be. Even if the best you can do is to save 1%, start there and commit to increasing it every six months or every year. By your 30s, you’ll be right where you need to be, saving 10% or more for your future self.

If your company offers a 401(k) match, though, you’ll want to contribute at least enough to get the full match.

To make sure you don’t skimp out on retirement savings, treat it like a bill — think of it as a mandatory monthly expense. Again, if you have the option of saving in a 401(k), money will go straight from your paycheck to your plan, so you never have to think about it. But if you’re saving in an IRA, you’ll have to fund it yourself. Set up automatic contributions and have money go from your checking account to your IRA every time your paycheck lands.

3. Set up an emergency fund

Similar to how retirement can feel far off in your 20s, a medical scare or other emergency may seem unlikely when you’re young. But no one is invincible, and it’s important to have a cash cushion to fall back on in case you lose your job, rack up a massive medical bill or have to replace a major car part.  

You want to have at least three months’ worth of expenses set aside in an emergency fund, though, the more you can save for a rainy day, the better. The exact amount that makes sense for you ultimately depends on what you feel you need stashed away in order to sleep well at night.

Calculate your monthly expenses and then multiply it by three (or however many months’ worth of expenses you want to save). That’s the dollar amount you want to save. You don’t have to save it all overnight — it can be a gradual process. Commit to consistently putting a portion of your income (1-5%) into your emergency fund until you reach your goal amount. The best way to stay on track is to automate the process. Set up a recurring, monthly deposit from your checking account to your emergency account. 

As for where you keep your rainy day fund, you want this money to be separate from the rest of your savings. That way, you’ll be less tempted to dip into it for non-emergencies.

A good option is to park it in a high-yield savings account at an online bank, where your money will be highly accessible and earn more interest than it would in a traditional savings account. The “big banks,” like Chase and Bank of America, typically offer 0.01% APY on their savings account, meaning your money is earning next to nothing in interest. 

High-yield savings accounts offer significantly better interest rates (because, unlike their brick-and-mortar counterparts, they don’t have to spend money building thousands of branches and hiring people to fill them).  

Before Covid-19 hit, internet banks were offering interest rates between 1 and 2%. That’s 100 to 200 times higher than the national average. While the pandemic has driven interest rates down significantly, you can still find some savings accounts out there with appetizing yields. Look into opening a high-yield account at online banks like Varo, TAB Bank, Synchrony and Marcus by Goldman Sachs.

4. Pay off debt

The sooner you can get out of the red, the better your financial future will look. 

Make it a priority to tackle student loans and credit card debt in your 20s so you can direct all of your attention to saving, investing and growing your wealth by the time you’re 30.

Whether you have credit card debt, student loans or both, the first thing you’ll want to do is understand exactly how much you owe and what your interest rate is. Then, create a clear debt repayment plan and stick to it. 

Your plan should factor in retirement savings — you want to still be saving for your future while paying down your debt. In an ideal world, as mentioned earlier, you’re saving 10-15% of your income for retirement. If you’re in debt, though, take whatever amount you decided to put away for retirement and split it in half, with 50% going to your future and 50% going to your debt.

Say you earn $50,000 a year and can afford to save 10% of your pre-tax income. Normally, this would mean you’d be putting aside $5,000 a year, or $416 a month, for your future self. But if you have credit card debt, you’ll split the $416 a month in half, putting aside $208 a month for yourself and $208 a month to debt reduction.

Of course, the more you can put toward your debt, the better. Read up on ways to free up cash or think about ways to earn more income and direct anything extra toward your debt repayment. 

The easiest way to follow through on your debt-repayment plan is to make your payments automatic. To do this, call your lender and tell them you would like to arrange for them to make an automatic debit from your checking account each month. 

5. Set up a system to track your spending

If you’re not careful, your first paychecks can disappear in the blink of an eye. Rent, car payments, insurance and other bills you may be covering for the first time add up quickly — not to mention, restaurant tabs, take-out, subscriptions and other discretionary expenses. 

It’s important to understand how much you’re spending and what you’re spending on. Otherwise, you might spend everything you make — or worse, live beyond your means, which could quickly spiral into credit card debt. 

To ensure you’re not overspending, set up a system to track your expenses. Create a spreadsheet using Excel or Google Sheets and record everything you buy. Or, use an app that’ll do it for you, like Personal Capital or Mint — all you do is connect your accounts and the app will provide you with detailed reports on your spending, broken down by category.

At the end of the day, building lasting wealth isn’t about how much money you make — what matters is how much you keep. If you establish smart spending habits in your 20s, you’ll be a conscious spender for the rest of your life, always keeping more of what you make.

6. Buy the insurance you need

As a 20-something, you’re probably dealing with insurance for the first time. Picking the right insurance can be a tedious task, but it’s necessary — and could save you thousands of dollars in the event of a car accident, medical scare or other disaster.

Insurance is largely personal — what you need will be different from what your friends or family need. Plus, as your life changes (when you start a family or get married, for example), the coverage you’ll need will change. 

That said, here are four types of insurance that are smart (and in some cases, essential) to have in your 20s:

  • Health insurance. This one is a must, especially as we’re living through a pandemic. If you’re self-employed or your job doesn’t provide health insurance, you can shop for plans through Healthcare.gov. You’ll want to spend time choosing the plan that’s right for you and make sure you understand your premium (the monthly bill you pay to your insurance company) and deductible (the amount you’ll owe out-of-pocket before your insurance kicks in). Note that if you can stay on your parents’ health insurance plan until you’re 26.
  • Auto insurance. If you have a car, this one is also a must. Expect to pay about $130 a month for car insurance, but rates vary based on a variety of factors, including: your age, credit, driving record and location. Like all types of insurance, shop around for car insurance and get quotes from 3-4 companies to make sure you’re getting the best possible deal.
  • Renters insurance. If you’re a renter, it’s worth it to pay for renters insurance. It’s essentially financial protection for you and your belongings. Some landlords require you to have it before signing a lease, but it’s usually up to you to decide if you want to buy it. Renters insurance is one of the most affordable insurance policies you can buy. The cost varies by a variety of factors, including your location, how much coverage you want and your deductible, but the average renter can expect to pay about $15 a month for coverage.
  • Disability insurance. If you rely on a paycheck, you should get disability insurance. It’ll pay a portion of your income if you get injured or sick and can’t work for an extended period of time. If you’re an employee, you should be able to get a policy through your company, but if you’re self-employed, you’ll have to shop for an individual policy. If you feel strongly that you’ll never have to use this type of insurance, consider this stat: More than 25% of 20-year-olds can expect to be out of work for at least a year due to a disabling condition before retirement.

7. Build your credit

Eventually, you’re probably going to want to buy a home, get a new car or open a credit card — all of that is going to be easier (and cheaper) if you have a good credit score.

Lenders (think: banks providing mortgages, credit card companies or car dealerships financing auto purchases) will pull your score before lending you money and, based on what they find, will decide if you qualify for a loan and what interest rate they’ll charge. In general, a higher score means it’ll be easier to get a loan and you won’t have to pay as much in interest.

Your score depends on a variety of factors, including payment history, credit utilization rate and length of credit history. If you are diligent about paying your bills on time, use less than 30% of your credit limit (for example, if your credit limit is $10,000, you want to keep your balance below $3,000 at all times) and generally show that you can be responsible, you’ll build strong credit.

If you don’t have a credit card, it can be tricky to get one without a credit history — so how do you display responsible repayment habits if you can’t even get a card in the first place? You have a few options: You can become an authorized user on someone else’s (a family member or a friend) credit card, which means you can use their card and “piggyback” off their activity. You don’t have to ever use it, though, to benefit. The catch is, if the primary cardholder racks up big balances and misses payments, that could hurt your credit instead of helping it, so you want a primary user with smart credit card habits.

You can also apply for what’s called a secured card — it works just like a regular credit card, but you make a cash deposit upfront (the deposit amount is typically the same as your credit limit and around $200).

While a credit card is a great tool for building credit, you don’t necessarily need one to do so. You can get a credit-builder loan, which is specifically designed to help people without a credit history build credit. 

You can also get credit for paying bills like rent, utilities and cell phone on time, thanks to services like Rental Kharma, which lets you add all of your rental payment history to your credit report, and Experian Boost, which lets you add phone payments and even bills like Netflix to your credit report. The more on-time payments you make, the stronger your credit score will become.

8. Start saving for big, future purchases

The older you get, the more expensive life tends to become. You might buy a home, start a family or go to grad school.

It’s smart to start saving for major, upcoming purchases — even if they seem far off. Create separate savings accounts for each purchase so you can easily keep track of your progress. If you plan to buy a home, open a “home fund” and start saving for a down payment. If you plan to get married one day, start a fund for your future wedding. 

Keep in mind that before you start saving for these specific goals, you want to make sure your emergency fund is fully stocked, you’re saving enough for retirement and you’ve paid off your high-interest debt. 

9. Open an investment account

Smart, consistent investing is what will help you build lasting wealth. Investing in a retirement account is a good start, but those accounts have contribution limits (and if you’re using an IRA, the limit is pretty small: $6,000 in 2021).

Before you start investing, you’ll want to make sure your general finances are in order — meaning, you have a fully funded emergency fund, you’re paid off your high-interest debt and you’re saving enough for retirement.

If you’ve ticked those boxes, consider putting extra money in a low-cost index fund, which legendary investor Warren Buffett recommends. Index funds, which hold every stock in an index such as the S&P 500, are highly diversified and tend to have low expense ratios, making them an excellent option for new, young investors.

You can also look into automated investing platforms known as robo-advisors like Betterment, Wealthfront and Sofi. They’ll build a portfolio for you, depending on your money goals and risk profile, making investing easy and hands off. They have very low account minimums, meaning you can start investing with just a couple of bucks. 

Check out our top-recommended robo-advisors.

Even if you can only invest $5 a week, start there! You have time on your side when you’re young, and even small, weekly or monthly contributions can grow tremendously over time. What matters more than how much you contribute is getting started and making investing a habit. 

10. Invest in yourself

If you followed the first nine steps, you have all the tools necessary to be a conscious spender, save for short- and long-term money goals and build lasting wealth. You know how much of your income to set aside for your future self and how to invest any extra cash you have lying around.

The last thing you can do to set yourself up for a prosperous and rewarding future is to invest in yourself. That could mean prioritizing your health by buying healthy foods or setting aside time to exercise. It could mean reading self-help books, surrounding yourself with smart, driven people or practicing new skills that will make you more valuable at work. It could be hiring a financial advisor, which would be an investment in your current and future self. 

The investment you make in yourself today will pay off in spades in the long term.

Read next: 8 Smart Money Moves to Make Before Turning 40