The Money Habits You Develop in Your 20s Will Help OR Hurt You For the Rest of Your Life

December 1, 2014

Have you ever heard the saying as the twig is bent, so grows the tree? That’s kind of how it is when it comes to money and finances. The money habits you develope in your 20s will help or hurt you for the rest of your life. What’s more, you have a very large degree of control over how it all turns out.

Like so many other decisions that you make early in life, the choices that you make when it comes to money in your 20s will have a huge impact on the rest of your life. Since financial situations develop over many years – often decades – the patterns that you set in your 20s will have a profound effect on your level of prosperity throughout your life.

Here are some of the major decisions that you will have to confront and settle shortly after graduating from college.

To save or not to save

The savings rate in the US is appallingly low. The majority of people seem have little or no savings, while the top 10% or 20% of households are perpetually flush with cash. You can and should make a decision on this while you’re in your 20s.

As much as anything else in life, like diet, exercise, and work style, saving money is a habit. If you get yourself into that habit early in life, you’ll generally find you will have money throughout your life. Even if you start saving a small amount, you’ll be setting a pattern that you will follow without much thought in the years ahead.

The impact of this kind of a decision will grow over time. Though your savings may be relatively small while you’re still in your 20s, they will begin to growth in your 30s, and by the time you hit your 40s you will have options that other people only dream of.
This is decision that you have to make right now – to save or not to save – over the course of your life. This is especially important because life has a way of getting more complicated as we get older. Though you may think that saving is a decision you can make “later”, your circumstances may not allow it. But if you’re already in the habit now, you’ll be likely to continue to do it even when those complications set in.

Investing as a life choice

Investing money is a natural extension of savings. It’s what you do with savings that are in excess of your immediate needs for cash. And just like saving, investing is a life choice.

Study after study have shown that the people with the largest investment portfolios are those who began investing early in life. This is because of the time value of money – the earlier you begin investing, the more time your money has to grow.

Get on the investing bandwagon early in life, and your portfolio will grow as you get older. And as it does, the options that you will have in life will steadily increase.

But like saving money, investing is a choice, one best made here and now.

Debt is not your friend – or maybe you think it is

Debt is almost the “B side” of investing. More particularly, those who choose not to invest usually have more than a fair amount of debt.

While this may have something to do with patterns of consumption – which we’ll deal with next – it’s probably more a function of not having savings and investments to pay for major purchases and expenses.

The person who has a sufficient amount of savings and investments, has a ready source of capital to draw on when they need to make a major purchase, such as a car or a vacation. The person who lacks financial assets is more likely to go into debt to pay for what they want but cannot afford.

Unfortunately, it’s very easy to get into debt. Many young people do it as a function of student loans. When they graduate college, and they’re beset with the startup expenses of life, they turn to credit once again. With each purchase, a decision is being made to go deeper into debt.

You can choose to break this pattern, and it’s best to do it early in life. Don’t buy anything that you can’t afford to pay for with cash. Plan to buy what you need secondhand – you can usually get it for pennies on the dollar. Don’t start trading up on your possessions until you have the income and assets to justify it. Those are habits you need to get into now.

Living large – or living on the down low

Your 20s are also a time in life when you’re making choices about how you want to live. Some young people – anxious to start living the good life – start patterning their lifestyles on free-spending friends, or even on people on TV. Delayed gratification isn’t in their vocabulary, they want it all now.

It’s fine to want to live well, but that’s also an expensive way to live. It’s the kind of mentality that creates debt, and a perpetual need to make more money. Because of income taxes and other fixed expenses, there’s never quite enough income available to pay for the lifestyle that you want to live. That’s where debt enters the picture.

Choose to go in the opposite direction. Delayed gratification has to be your mantra. You’re young, and you’re just starting out, so it’s perfectly okay to live on the down low. Keep your expenses low – rent an apartment with roommates, buy a secondhand car, and find ways to travel on the cheap. It’ll all work out with a stronger financial position later in life.

Hard assets vs. financial assets – stuff vs. money

This is a problem in our culture, and it starts in youth. It’s probably not a conscious decision, but we have to make a choice as to whether or not our money will flow into hard assets – stuff – or financial assets. Financial assets are the kind of assets that provide future income. Hard assets are the type of goods that provide some current use.

If too much of your money is going into hard assets, little will be available to go in a financial assets, which is to say that you won’t be able to invest.

This is another major choice and you have to make right now. Will you put your money into stuff, or will you invest it in financial assets? The quality of your future financial situation hangs in the balance on that decision.

As much is may be tempting to go for the good life while you’re in your 20s, recognize that life goes on for decades, not years. You’ll need to provide for yourself over the course of your life, and the more that you can do now to set yourself in the right direction, the easier the rest of your life be.

It will be based on a set of choices that you can make right now.


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Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids and can be followed on Twitter at @OutOfYourRut.

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2 Responses to The Money Habits You Develop in Your 20s Will Help OR Hurt You For the Rest of Your Life

  • Agatha

    Really Helpful Article . Thanks

  • Mimi

    I didn’t have the financial literacy back when I was in my early 20s but early on, I knew what I wanted to do with my money, just not how to go about it. I think I would be in a better financial standing right now if I started early. The early bird gets the worm as they say. 🙂