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Planning your financial future

How to manage money in your 20s

Twenty-somethings, now is the time to build a strong financial footing. Review this checklist and find out how to take charge of your future.
While everybody's financial situation is unique, and there are varying opinions about the best way to build your financial health, below are few financial strategies to consider as you get established and start saving money in your 20s.

Financial fundamentals

✔ Develop a realistic budget and stick to it

Learn how to budget. Decide how much you can afford to spend and save each month. Your financial independence and security depend on making wise choices. Need a template? Search online for “personal budget.” You'll discover tons of free resources.

✔ Know your credit score

Credit scores are used for much more than applying for loans. Did you know your credit score might influence the cost of your car insurance in many states? You are entitled to a free credit report each year from each of the three reporting agencies. Go to to request your reports.

Money saving essentials for your 20s

✔ Maximize employee benefit options

Contribute enough to your 401(k) or 403(b) accounts to earn employer matching if it's available. Also, take full advantage of any pre-tax deduction options, such as a health savings account, to help cover medical expenses.

✔ Repay student loans

When you develop your budget, try to allocate funds for a slightly higher student loan payment than what is required. That's pretty good advice for any debt. If you're balancing more than one loan, it may make sense to apply the extra funds to the one with the highest interest rate.

✔ Build an emergency fund

Throughout your lifetime you'll need a financial cushion to cover unexpected expenses. Most experts recommend that you have an emergency fund equal to three to six times your monthly income.

✔ Apply for a credit card

A credit card contributes to your credit score and builds your payment history. Plan to pay the entire balance each month. Be sure to carefully review the different features of each to select the credit card that works to your advantage.

✔ Consider saving for your first home

The cost of housing in your community will dictate whether buying or renting is the smartest choice. If you plan to buy, lenders typically require a minimum credit score of 580 or higher. Your debt to income ratio will be considered. And, you will most likely need a down payment. The standard down payment is 20% of the mortgage amount, but that requirement varies by lender so shop around. An FHA (Federal Housing Authority) loan may require as little as 3.5% down payment, but might have stricter requirements than most private lenders.

✔ Establish a relationship with insurance and financial professionals

Initially, you may only need auto and renter's insurance (to cover your personal possessions). Before long, you will want to consider other financial risks. A financial professional will prepare for the evolving risks you face as you earn more money, become a homeowner, a spouse or a parent.

Extras for this decade

✔ Consider a ROTH IRA

A ROTH IRA is a way for saving for retirement in your 20s and beyond. A very attractive tax advantage of a ROTH IRA is that qualified withdrawals are tax-free. 

Financial rules of thumb

✔ Strive to save 30% or more of your income

10% for retirement, 10% for your emergency fund, and 10% for large purchases or vacations.

✔ Start building an emergency fund

Strive to save three to six times your monthly income.

✔ Be mindful of your housing to income ratio

Try to limit your housing expense to no more than 28% of your gross household income.

✔ Watch your debt to income ratio

Try to limit your total debt (mortgage, car loan, credit cards, student loans) to 36% of your gross household income.

✔ Keep your credit card balance to limit ratio under control

To keep your credit score as high as possible, don't let your balance exceed 30% of your credit limit.



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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective or its subsidiaries.

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