Although everyone’s life experiences are unique, there are some financial planning steps that are well worth thinking about when you’re in your 20s. Here’s our summary of the most important ones.

For many people in their 20s, financial planning takes a back seat to starting a career, becoming more independent, and getting the most out of life. It’s also likely to be the time in your adult life when you have the smallest disposable income (the money left over after you pay for bills and other essentials).

But this is also the best time to start creating some important financial habits, some of which could pay off massively as you get older.

Start thinking about reducing the amount you spend on variable costs and those ‘non-essential’ items

Learning to budget

If you’re in your 20s, you’ve probably found that life involves a lot more responsibility than it did even just a few years ago. Maybe you’ve left university with some student debt to pay back, travelled the world, fought to get onto the career ladder – or perhaps even started a family.

Whatever the past few years have thrown at you, you might have got into the habit of living life from day-to-day, and then finding that your money has somehow disappeared by the end of the month. That’s certainly not unusual – even for people much later in life! But whatever your situation, it’s worth setting a monthly budget that tracks your income and your outgoings, and helps you live within your means.

A good place to start is trying to balance your monthly income (wages, or other money you receive) with your outgoings (the amount you spend each month). You can then separate your outgoings into ‘fixed’ costs (such as rent, loan repayments and other bills), and ‘variable’ costs, which might include things like petrol, takeaways, and social activities.

Once you get a good idea of how much you are regularly spending, you can start thinking about reducing the amount you spend on variable costs and those ‘non-essential’ items. It might even mean you have some spare cash left at the end of the month, which can be used to save for more important things.

Paying down debts

You may find you’re quite comfortable with the idea of debt – possibly without even realising it. Mobile phone contracts, car finance, buy-now-pay-later schemes and credit cards are some of the most common forms of debt for twenty-somethings, and all can tempt you into the mindset that ‘life is for living’ – and debt can be worried about later.

But the reality is that debt can have a destructive and lasting effect on a person’s life. Not only can racking up debts affect your credit score – making it hard to get a mortgage in future years – but it can also cause anxiety, depression and take a heavy toll on personal relationships.

Therefore, one of the best financial planning steps you can take in your 20s is to start repaying the debt you owe, even if only by small regular amounts, and do what you can to avoid accumulating any more.

Build up a ‘rainy day’ savings fund that’s equivalent to at least three months of your salary

Getting into the savings habit

Once you’ve started sticking to a budget and paying down any debts, it’s a great idea to use any money left at the end of each month towards savings and investments.

Most financial planners say everyone should build up a ‘rainy day’ savings fund that’s equivalent to at least three months of your salary, to cover anything unexpected that life throws at you. That will take time, as will saving for significant life-changing events like buying a house, getting married or starting a family or your own business. But the sooner you start, the sooner you’re likely to reach your goals.

At this point, it’s worth opening an Individual Savings Account (ISA) into which you can make regular deposits up to £20,000 per year. The great thing about an ISA is that you won’t pay any tax on your savings or any growth they generate, and there are different types of ISAs to suit different needs and goals.

A Stocks & Shares ISA, for example, allows you to invest your money in shares, funds, bonds or investment trusts (compared to a Cash ISA, which will pay you a fixed amount of interest every year). This means even a small amount invested has the potential to grow into something significant in a few years’ time.

Of course, it’s important to remember the value of investments can fall as well as rise, and you may not get back the full amount invested. But getting into a positive savings habit in your 20s is a great way to put you on a positive path for your financial future.

Starting your pension

Pensions are rarely a popular subject among twenty-somethings, but the sooner you start saving for retirement, the more comfortable your later life will be. It may not feel like a priority at the moment, but everyone who has a pension probably wishes they had invested more into their pension sooner.


Well, it’s all down to the power of long-term growth and compound interest.

For example, a 25-year-old who invested £100 a month into their pension until they turned 65 would end up paying a total of £48,000 into their pension. Assuming a growth rate of 5% every year, their pension would have grown by £105,000, giving them a total pension pot of £153,000.

However, if they had only started paying into their pension at age 45, they would have had to pay twice as much (£200 a month) to invest the same £48,000. Assuming the same 5% annual growth rate, their pension would have only grown by £34,000 by the time they retired at 65, meaning they end up with a much smaller pension pot of just £82,000.

These are just rough illustrations, but they demonstrate the power of investing over a longer time period. In other words, the sooner you start putting money into your pension, the more time that pension pot is able to grow. Even starting with a relatively small regular contribution can make a big difference to your overall retirement pot down the line.

Establishing good habits

Managing your finances in your 20s can be extremely challenging. You may have lots of debts to pay and are only taking your first steps on the career ladder. But even so, the choices you make in your 20s could have a lasting impact on your future finances. Focusing on the basics and creating some good financial habits can help you work out your priorities and put you on the path to achieving your longer-term financial goals.

Of course, everyone’s financial goals are different, which is why Amber River developed Life Landscaping®. Your financial planner can help you to map your life journey, helping to make sense of your current finances, and encouraging you to make decisions that could prove invaluable in the years to come.

There have been significant changes to pension savings in the Spring Budget 2023 that may impact your retirement planning. To find out more, see: How does the 2023 Budget affect your pension and retirement planning?

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