6 Things You Should Understand About Money By The Time You're 25

It's beneficial to make smart financial decisions as soon as you can.

How Millennials Can Manage Their Finances And Find Ways To Save Money Spencer Backman via Unsplash

By Kate Harveston

Many young adults make easily-avoidable financial mistakes that cause distress for years to follow.

If you’re wondering what you can do to manage money in your 20s to set yourself up for a life of financial success, check out these 6 tips!

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1. Start saving money sooner rather than later.

Interest can help your money work for you, so the earlier you start saving, the better. If you tuck away $4,500 in a retirement fund each year starting at age 20, you’ll end up with over a million dollars by the time you retire. If you wait until you’re 30, though, you’ll struggle to catch up!

Also, create an emergency fund. This stash should ideally contain 3-6 months of necessary living expenses. Don’t link this emergency fund to your checking account or debit card. This way, you’re less likely to take out money for frivolous wants.

2. Invest money in both life insurance and disability coverage.

Few people enjoy thinking about worst-case scenarios. However, if you wait until you’re sick or injured to seek coverage, most insurance companies will reject your application for disability benefits.


If you’re supporting yourself paycheck-to-paycheck, you risk losing everything if an injury or chronic illness prevents you from working. So, don’t skip out on disability coverage if at all possible.

You should also do this with life insurance.  Since these policies require a medical exam, starting young can really help you out. Additionally, a whole life insurance policy builds cash value on a tax-deferred basis, meaning you save more of your money.

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3. Debt can cripple you, so skip the credit cards.

It’s tempting to max out those credit cards on a shopping spree, but trust me, you’ll pay for it later. If you do need some revolving credit, get a credit card with travel rewards or cashback offers.


Also, only use credit cards for purchases you can afford to pay off immediately, so that you don’t fall into a cycle of debt.

4. Remember that your credit score matters a lot.

You can argue that it’s unfair for an agency that risked customer data in a severe breach to determine whether you can buy a home or a car. However, this doesn’t change the fact that credit scores matter.

Take advantage of a free copy of your credit report each year and look closely at the data. If you notice any discrepancies, file a police report of identity theft and report the error to all three bureaus. This effort will save you money in the long run.

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5. Education isn’t necessarily a path to prosperity.

If you’re struggling financially, you might think, “I’ll just go back to school.” For-profit colleges want you to buy into this myth. However, earning a degree doesn’t necessarily equate to higher pay.

Low-income students are more likely to drop out of college due to outside pressures. You still have to repay any loans you took out — but you lack the degree hanging on your wall. Even if you do graduate, there’s no guarantee you’ll find a job that pays you for what you’re worth.

Instead of investing in an entire degree, consider taking courses through sites like Udemy. This allows you to increase your skills without significant financial burden.

6. Home ownership can actually secure your future.

Unless your job requires frequent relocation, buy a home if you’re able. When you pay rent, you acquire no equity in the property, meaning you’ll still have a housing payment in retirement.


If you own your home, though, you will eventually eliminate this monthly bill. You can even secure a home equity line of credit or a reverse mortgage to pad your golden years further.

Many 20-somethings struggle financially, but you don’t have to. If you start making wise financial decisions now, you can retire in style when the time comes.

Stay mindful of your finances and follow these simple tips. Trust me, you’ll be glad you did when you find yourself financially secure in your 30s and 40s.


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Kate Harveston is a writer who focuses on millennials, self-care, and money. For more of her millennial content, visit her Twitter page.