I’m a credit card writer. Here are 7 things I wish I’d known about money in my early 20s

For the first half of my 20s, I thought about money in the same way you might think about grocery shopping or laundry — a chore, but not requiring more brain space than necessary to get food on the shelves or clean clothes in the closet. As long as there was enough money at the end of the month to pay my bills, I figured I was doing all right.

Here are seven tips I wish I’d heard when I was in my early 20s.

1. Start a values-based budget

Sixty-four percent of American Gen Zers say they are not completely financially secure but will be someday, according to Bankrate’s 2024 Financial Freedom survey. However, 13 percent say they aren’t financially secure and likely never will be.

But it’s worth noting that more than 2 in 5 American Gen Z cardholders (42 percent) carry a credit card balance from month to month, according to Bankrate’s 2024 Credit Card Debt Survey. Further, more than 1 in 4 American Gen Zers (28 percent) say they’re living paycheck to paycheck, according to Bankrate’s 2024 Living Paycheck to Paycheck Survey.

This tells me that some Gen Zers are spending more than they can afford.

Cutting costs doesn’t have to be all or nothing. When you make a values-based budget, you set aside money for expenses that align with your values while skipping expenses that don’t. Values-based budgeting might affect where you live, shop, travel and spend your free time.

For example, you might prioritize occasional dinners out with friends, but decline that concert invitation. High on your personal value scale: good food and conversation. Low on your personal value scale: loud music.

You could choose road tripping to a national park over traveling to another country. High value: new experiences. Low value: expensive flights.

Recently, I deleted the Amazon app off my phone to minimize impulse purchases — it’s not a high-value retailer for me. A year ago, I made a resolution to buy thrifted clothing instead of full-price, when possible. If I had scrutinized my expenses in my early 20s, I could have acquired less and saved more.

Similarly, Broughton told me he values travel, so he budgets for an annual trip outside of the U.S.

“I realized I don’t need to splurge on nice clothes all the time,” he says. “But I really want to go on that trip to Japan.”

2. Have several buckets for savings

Saving money, in this economy? It’s possible if you start early and use tools like a high-yield savings account and an employer-matched retirement fund.

Some young adults funnel money into their retirement fund once they start earning paychecks, which is a great place to begin. Many employers offer a 401(k) match, which is basically free money for your retirement.

In my early 20s, I automatically added money from my paychecks to my 401(k). But after paying rent and my credit card bills, I’d put whatever was left — if anything — into a savings account. I was taking a passive, not active, approach to spending.

Now, I recommend setting aside a certain amount of your income at the beginning of each month to help reach your savings goals. It’s a good idea to create a couple savings buckets, including:

• An emergency fund with three to six months’ worth of expenses, in case you run into financial hardship or lose your job. More than 1 in 4 American Gen Zers (29 percent) have no emergency savings, according to Bankrate’s 2024 Emergency Savings Report.
• A sinking fund where you set aside money for a specific financial goal, like paying for a car,  home, vacation or wedding. These milestones might seem far away, but now is the time to start socking away extra cash.

You can stash these savings in one of the best high-yield savings accounts, where your money could earn more than 5 percent, compared to the current regular savings average of 0.67 percent.

When Broughton was halfway through college, he found himself unable to pay for tuition or school expenses. He needed to make some financial changes.

“I was not good with money management,” he says. “It wasn’t until the next semester started and I didn’t have money for books that I realized I needed to start saving.”

3. Learn the factors that affect your credit score

A good credit score can help you qualify for future credit like mortgages, car loans and rewards credit cards. And it can get you better interest rates and loan terms, which saves you money over time. But what impacts your credit score, exactly?

Hopefully, you know that paying your bills on time is essential for good credit. But I didn’t learn about credit utilization ratios or length of credit history until I was in my mid-20s. These are also factors to your credit score.

The lower your credit utilization, or amount of available credit you’re using, the better for your score. Experts recommend keeping it below 30 percent — so if you have $1,000 in available credit, try to only use up $300 before paying it off. You can improve your credit utilization by requesting a credit limit increase on your credit card and not carrying a balance month to month.

And if you haven’t already opened a credit card or line of credit, do so today — and keep it open. As long as you use it responsibly, having that account open for years can help your score.

“The most important thing you can do is build a trusting relationship with a banking entity or credit card entity,” Broughton advises. “Not only does it build your credit score, but it builds your rapport with the bank over the next, hopefully, 10, 20 or 30 years.”

He explains that many people don’t start thinking about credit until they need a good credit score to get approved for something, like a card or an apartment lease. But building credit takes time, so it helps to start early.

4. Know that living with others is more affordable than living alone

A burning question of your 20s can be how and where to live. Bankrate’s 2024 Rent vs. Buy Study shows that renting might be the most cost-effective option in most major U.S. cities right now. If that’s the route you go, it begs the questions: What type of rental should you find? What neighborhood should you live in? Who should you live with, if anyone?

Your living situation can have a big impact on your well-being, and there’s no right or wrong answer. But it’s worth noting that, living alone today, I pay 116 percent more in rent than when I lived with three friends and 33 percent more than when I lived with a boyfriend. Plus, I pay for all of my dog’s costs, household items and Wi-Fi and utility bills.

If you do choose to live alone, make sure you’re okay with prioritizing that experience over saving up to buy a house. If you choose a more affordable renting option, like having roommates, you could set aside extra money monthly toward a house fund. Or if you’re ready to buy a house now, you can explore getting a mortgage at a young age.

Broughton says he’s moving to Atlanta because his rent will be roughly 80 percent more affordable than it was in California. “I want to buy a home this year,” he explains.

The money he’s saving on rent will come in handy when it’s time to make that down payment and mortgage payments.

5. The stock market is going to stock market

If you want to start investing, now’s as good a time as any. Just be prepared for swings in the market — and your emotions, too.

In 2019, I invested an extra $6,000 I had sitting around. Over the next several years, I watched it drop…and drop…and drop. Every impulse in me wanted to pull that money out before it lost even more value. But I got advice to wait, because the market would swing back up.

Spoiler — it did, and I got my money back plus some. So if you experiment with investing and lose money initially, don’t fret. But also make sure you’re making smart investments, and don’t invest money you might need soon.

Broughton taught his little sister how to invest using an investing app for young adults. She learned her first lesson about stock volatility when her account went down 80 cents. “Keep investing every two weeks, and that little 80 cents is going to make no difference at all in the long term,” he told her.

Learn more about how to start investing in your 20s.

6. Don’t miss out on free money

There are a number of financial products that reward you simply for using them. These include rewards credit cards, high-yield savings accounts, certificates of deposits (CD) and employer-contributed 401(k)s and HSAs.

I didn’t open a high-yield savings account until 2023, but since then, I’ve earned more than $500 in interest with my emergency fund simply sitting in the account. I’ve been flying for free since I opened my co-branded airline credit card in 2022. I’m getting a 5 percent match on my retirement contributions, and my HSA has covered all my medical expenses this year.

As long as you use these products responsibly, it’s a great way to put extra cash in your pocket.

7. Don’t let money dysphoria get to you

Finally, resist the urge to compare your finances to other people’s. The trending term “money dysphoria” describes the way many young people feel insecure about money.

But “it’s a personal financial journey, and no one’s financial journey looks the same,” Broughton says.

He explains that managing your money is like working out or self-care. “Once you realize that the personal journey is something you have ownership of, I think you stop comparing yourself to others and you start to build your own wealth,” he says.

You’re doing fine. With practice, you’ll do even better.

The bottom line

Your 20s are a time for making and learning from money mishaps. But hopefully, my early money mistakes can help you avoid a few of your own. Use these easy tips today to help set yourself up for success tomorrow.

You can get even more post-graduation financial tips from these Bankrate experts.