6 Smart Financial Habits You Should Start in Your 20s

Start these smart financial habits early to set yourself up for financial success!

I see lots of talk online and on social media about the importance of developing healthy habits. But, it’s usually for things like exercising, healthy eating habits, morning or night routines, etc. I rarely see financial habits being talked about, even though it’s one of the most important!

The things you do (or don’t do) with money in your 20s can really impact the trajectory of your financial situation for years to come. The earlier you establish good financial habits, the better outcome you’ll have.

But also- it’s never too late! If you’re reading this post and you’re past your 20s, don’t panic. These habits are all things that anyone can start today.

I’m not a financial expert by any means, but I’ve learned a lot of major financial lessons over the past decade. I hope that sharing lessons I’ve learned helps you get on the right track!

This post is all about smart financial habits!

Top 6 Smart Financial Habits

1. Track your money in a budget

The earlier you get a handle on your financial situation, the earlier you can start making good decisions. A budget is an essential step to getting your finances under control! I have a whole post on budgeting (How to Make a Monthly Budget: Step-by-Step Guide For Beginners) that I recommend you check out if you’re new to budgeting!

When I was younger, I had no idea how much money was coming in or going out of my bank account. Setting up a budget was a game-changer. My budget allows me to ensure my spending remains under control, and also helps me hit my savings goals. I wish I started by budget earlier in my 20s!

Your budget doesn’t have to be super complex or even time-consuming. It’s all about the habit of being aware of where your money flows.

2. Living below your means

Alongside budgeting, living below your means one of the best financial habits you can start at a young age. Living below your means essentially means that you spend less than you make. When you live below your means, you will be able to save money each month and avoid living paycheque-to-paycheque or getting into debt.

Budgeting helps you determine what your “means” are, but then the next step is to live below that. It can be hard in your 20s, especially when you’re just starting out in your career and your income may not match the things you want to have. But if you live beyond your means in your 20s, you are setting yourself up to get behind very quickly.

3. Start investing early

I’m not going to get into the nitty gritty of investing. I’ll leave that to the financial experts! But, I will talk about the importance of starting early with your investment strategy.

Why start early? Two words: compound interest. Compound interest is basically the growth of your money that happens when you earn interest on interest. This YouTube Video gives a great, easy-to-understand explanation of compound interest using M&Ms!

When it comes to compound interest, the greatest advantage you can give yourself is time. The more time your money has to grow, the better! Here’s an example:

• Person A invests $1,000 at age 25. At retirement (age 65), with a 5% annual rate of return, that money is now $7,039.99.
• Person B also invests $1,000, but they wait until they’re 45. At retirement (age 65), with the same rate of return, that person only has $2,653.30.

Person B has missed out on thousands of dollars of interest because they didn’t start early. That is a HUGE difference! If you’re not convinced about the power of compound interest, take 5 minutes and plug a few numbers into this compound interest calculator!

Also, I think it’s important to mention that a lot of people in their 20s shy away from investing because they think it’s something only people with lots of money can do. That’s totally false. You don’t have to have thousands of dollars to invest, you can start with $50 or even $5! It’s about establish the habit, not necessarily the amount.

4. Build your credit score

For many of us, our 20s is a period where we’re considering major purchases- maybe a car, or a house. You don’t want your credit score to hold you back when you’re ready to make these purchases.

I recently read this article on How to Build Credit in Your 20s, which I found really helpful. The article breaks down what credit scores mean, and how you can build strong credit.

Two easy ways to start building credit include:

• Pay bills (ex. phone bill, utilities bill) automatically every month.
• Keep credit utilization rate low – only use a small percentage of the credit that’s available to you.

5. Develop your financial literacy

When it comes to finances, knowledge is truly power. There’s no shame in having little knowledge about finances – in fact, I’d say that’s very common in your 20s!

The more you understand about finances, the better position you will be in to make smart financial decisions. One of the best financial books I’ve read is I Will Teach You To Be Rich.

For my Canadian readers- the book does make a few references to things that are American-focused. But, I still recommend it because it covers important concepts in an uncomplicated way (which is hard to do!). If books aren’t your thing, try a podcast, or watch YouTube videos to boost your financial knowledge.

Buy I Will Teach You To Be Rich

6. Be a “slow shopper”

These days, it’s so easy to make impulse purchases. You can literally see something online you want and buy it within 2 clicks. If this habit sounds familiar to you, I highly encourage you to try to become a “slow shopper”.

When you see something you want, think about it for a day. Do you really need it? Do you have the money to buy it? Being a slow shopper doesn’t mean you can’t buy anything you want! The goal is to become more mindful about the purchases you make.

Starting this habit in your 20s with smaller purchases will help you be a critical shopper when you get older and have to make decisions about larger purchases.

This post is all about financial habits you should start in your 20s.

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• 5 Budgeting Mistakes and How to Avoid Them
• 8 Easy Ways to Save Money
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