As afee-only financial planner, I work with people whose ages range from the mid-20s into their 60s (and sometimes beyond). I especially enjoy working with younger people because of extreme potential when starting young. The earlier you start following a few key money practices, the easier it is to get – and stay – ahead.

Best 4 money tips for financial freedom in your20s

People who develop a financial plan in their 20s set themselves up for tremendous wealth and prosperity in the future. Of course, financial freedom isn’t limited to people starting young, but it sure is a lot easier!

Here are four key money practices you can start in your 20s that will set you up for financial success

Live below your means

I don’t know about your situation, but we started out in our 20s with fairly low income. And we made it work for us. Over the years we got raises and bonuses, changed jobs, and were able to increase our income. Do you know what else we did? We increased our spending in line with our income growth. So even though we made more money, we wound up spending more money. We bought a bigger house, nicer cars, and fancier vacations. Because of this, our actual level of wealth didn’t increase at all. We were spending as fast as we were earning.

If we had maintained our initial lifestyle, or just made small increases, we could have saved and invested a ton of money in our 20s. Starting earlier with investing would have made a huge impact on our financial fitness later in life. We look back at those years as almost “lost” as far as finances. Don’t make the same mistake we did.

Avoid debt like the plague

At the end of 2015, the average American household had $14,762 in credit card debt, $27,141 in auto loan debt, and $48,172 in student loan debt. That totals over $90,000 of debt – not counting mortgages. The average household is paying more than $6,500 each year in interest on the debt they are carrying.

I plugged numbers into an online financial calculator and you might find this interesting: If you had invested $6,500 into an S&P 500 index fund back in March of 2006, and each year added $6,500, after ten years your account balance would be $121,839.

So instead of paying $65,000 in interest payments, you would have gained almost $122,000 of wealth!

Wow. Is debt really worth it?

Build up your savings

If you live below your means you free up a lot of monthly cash to save and invest. But before you get too focused on investing, make sure you have adequate savings levels.

A recent statistic report that 62% of Americans had $1,000 or less in savings. That means a major appliance breakdown, household repair, job interruption, or other unexpected costs would push most people into a potential financial crisis.

We recommend you build up savings equal to 3-6 months worth of living expenses. A two-income household with steady salaried jobs is fine with savings to cover 3 months. If you have variable income or are a single income household, you might want to build closer toward that higher end of 6 months.

Do you happen to be an extra conservative person? There is nothing wrong with saving even more. I met with a guy recently who had enough saved to cover almost a year’s worth of required expenses – because he had both a single income household and also a variable income. Having extra savings helped him sleep better at night.

Start investing, and do it consistently

Once you have adequate savings to protect yourself against unforeseen financial emergencies (aka a fully-funded “emergency fund”), you should start investing. Starting in your 20s gives you a LOT of time to build up your investment portfolio. Steadily investing for 30 years when starting this young allows you to build consistently into your 50s – which is still a very young age.

To show the power of starting young and investing consistently, I entered some data into an online financial calculator and looked at the results of investing in the S&P 500:

  1. starting with $500 in 1986 (30 years ago),
  2. investing only $500/month (less than the average American annual interest payments) each month steadily,
  3. all dividends were reinvested right back into the market.

What does it show for results?

A balance of $678,717 after the 30-year investment period.

How would you like to have that much in investments in your 50s? You’d certainly be WAY better off than the average American household.

Do you think you could avoid debt and live beneath your means and free up enough cash flow to invest $1,000/month? If so, over that same period of time you would be able to grow your nest egg to almost $1.4 million dollars. Nice! :)

New to investing and just getting started?

As a fee-only financial advisor, I can help you clarify your dreams and priorities, then develop an actionable plan to achieve your goals. Having a financial plan for your life includes much more than just investing, but intelligent investing is definitely part of the solution. Just Start Here and let’s talk about how I can help you maximize your money to achieve the life of your dreams.