<h3>Building wealth when you're in your 20s might seem challenging when
you're navigating the workforce, paying bills, and trying to figure out
how to build the life you want. But according to the latest report from
the Transamerica Center for Retirement Studies, many Gen Z workers
are, in fact, saving for retirement.<sup><span style="font-size: 13px;">1</span></sup></h3>
<p>
Taking simple steps when you're young can help you build success later
on in life. Even if you don't have a lot of money, you can start to set up
plans that can make it easier to reach your goals as you get older.
</p>
<p>"In my experience, most folks in their 20s are overwhelmed by all the
financial decisions they face," says Lori Carver, CFP®, ChFC®, and
Senior Vice President of First Horizon Family Office Services.
</p>
<p>That includes how to budget, what insurance to get, and how to save
when you have student loan debt.
</p>
<p>The best way to overcome these challenges, says Carver, is to
understand where your money is coming and going, how much you
have, and use that knowledge to build a roadmap that personalizes your
financial goals.
</p>
<p>Following some of these steps when you're in your 20s can lay the
groundwork for a solid financial foundation.</p>
<h3>#1 Make and Keep a Budget</h3>
<p>One of the first things to do as you start building wealth is to get a
budget and stick to it. Find a system that works for you. That could be
the 50/30/20 budget rule, where 50% of your money goes toward
"musts" like bills, 30% to "wants," such as shopping or entertainment,
and 20% goes toward savings and debt. You can also try the zero-based
budgeting technique, which requires every expense to be justified, or a
combination of different techniques.
</p>
<p>The important thing is to know where your money is going. Many banks
offer online budgeting tools or apps, says Carver. First Horizon, for
example, has a financial wellness tab that automatically creates a
budget based on account activity.
</p>
<p>If you're just starting out, Carver recommends checking your budget
monthly.
</p>
<p>"First-time budgeters sometimes miss small things (think shopping runs,
morning coffee or soda on the way to work, etc.). By reviewing your
budget monthly, you can incorporate those things and get more
accurate over time," she says.
</p>
<p>Once you have your budget down, you can consider reviewing it every
three to six months, she added.</p>
<h3>#2 Build an Emergency Fund</h3>
<p>Sometimes unexpected things happen in life, such as your car breaking
down or having an unexpected medical emergency. These events can
take a <a href="/personal/support/calculators/how-much-do-i-need-for-emergencies">large financial toll if you're not prepared</a>.
</p>
<p>When you're young, you should be working toward building up your
savings, so you're not hit with financial struggles early on.
</p>
<p>Many experts recommend having at least three to six months of living
expenses set aside in a <a href="/personal/checking-and-savings/savings-and-cds/compare-rates">savings account</a>. Carver says building an
emergency fund is as important as building a foundation for a house.
You don't want to have to tap into your other savings goals to pay for an
unexpected flat tire, she explains.
</p>
<p>"An emergency fund of three to six months of expenses for those who
have W-2 employment, or six to 12 months for those who are self-employed, can not only cover emergencies but is also a good way to get
in the habit of saving money regularly," Carver says.</p>
<h3>#3 Avoid Debt and Live Below Your Means</h3>
<p>High-interest debt can prevent you from building your savings and
investment accounts. According to Carver, planning for major expenses
like buying a car or taking a vacation – and sticking to your budget –  is
one of the best ways to avoid debt.
</p>
<p>"If you have too much debt or are solely focused on paying down debt,
you may not be saving any money," says Carver.
</p>
<p>While certain types of debt, like mortgages or student loans, can be
necessary to build the life you want, it's wise to avoid unnecessary debt,
such as credit cards. Carver's advice for staying debt-free? Live below
your means.
</p>
<p>"Having a good handle on your finances and living within your means
are the best ways to avoid debt," Carver says.
</p>
<p>And if you do find yourself in debt that feels overwhelming, Carver
recommends working with a financial planner to set a realistic plan to
pay if off.
</p>
<h3>#4 Look Into Tax-Advantaged Accounts</h3>
<p>Carver is a strong advocate of using tax-advantaged retirement
accounts to start building wealth.
</p>
<p>Accounts like individual retirement accounts (IRAs) and 401(k) plans
offer tax benefits that allow your investments to grow on a tax-deferred
or tax-exempt basis. That means, depending on the type of account,
you may either pay the taxes later, usually when you retire, or
potentially owe little to no tax on your gains.</p>
<p>In addition, if your employer offers contribution matches with a 401(k)
plan, "don't miss out on the opportunity to take advantage of it," advises
Carver. She also recommends increasing your contributions by 1% every
year.
</p>
<p>"You don't miss what you don't see," she says.</p>
<h3>#5 Automate Your Savings</h3>
<p>Automating your savings is another way to easily build your wealth.
Many banks allow you to automatically set aside a portion of your
paycheck into your savings or investing account before it even hits your
checking account.
</p>
<p>Setting up automatic deposits allows you to save consistently without
needing to think about it. It can also make budgeting and saving easier.
If the money isn't easily accessible, then you'll be less tempted to spend
that money.
</p>
<p>"You know that saying, 'Out of sight, out of mind'? Having funds taken
directly from your pay is an excellent way to save money on autopilot,"
says Carver.
</p>
<p>Another way to automate your savings is to use round-up apps, which
save your spare change by rounding up what you spend on everyday
purchases. Some apps deposit this rounded-up amount directly into a
savings account, while others invest it in stocks to help grow your
savings.</p>
<h3>#6 Understand the Power of Compound Interest</h3>
<p>One of the reasons that investing is such a popular way to build wealth
is because of compound interest. “When you begin to invest early,
<a href="/personal/support/calculators/what-is-the-value-of-compound-interest">compound interest</a> can lead to exponential growth,” says Carver.
</p>
<p>Simply put, compound investing is when you invest your money, and it
earns returns. Then if you reinvest those returns, it can earn even more
money. After several years and decades, the compounding
accumulates, significantly increasing your wealth.
</p>
<p>You can begin investing with a modest income or savings. Starting to
invest in your 20s significantly increases the potential for wealth
accumulation by retirement, even with smaller contributions, thanks to
the power of compound interest. As Carver explains, if you have
invested $5,000 per year in a Roth IRA at 25 with 6% interest, in 20
years you would have $199,000.</p>
<h3>#7 Educate Yourself</h3>
<p>As your savings grows and your career changes, so will your financial
goals. Stay on top of your long-term goals by educating yourself about
what's possible. It's always best to seek advice from a professional who
can help you navigate the complex world of investing.
</p>
<p><a href="/wealth-management/financial-planning">First Horizon</a> can help strengthen your financial foundations by
providing personalized financial planning or suggesting an investing plan
that can help you reach your short- and long-term financial goals.
</p>
<h3> Never Too Early (or Late) to Start Building
Wealth </h3>
<p>Regardless of whether you open a Roth IRA account when you're 18 and
invest your part-time earnings or wait until you're in your late 20s to
save for retirement, the important step is to get started and keep at it.
</p>
<p>Accumulating wealth is a gradual process, and starting early gives you
more time to increase your savings. Working with a professional can
help you develop a financial plan that fits your lifestyle.
</p>
<p>"It is never too early to start talking to a financial planner...[they] will
help define goals that match your individual or family values, and help
you reach those goals," Carver says.</p>
<p style="text-align: center;"><a href="/wealth-management/financial-planning"><span class="cta-blue-fill-button">Talk to a Financial Planner</span></a></p>

<p style="font-size: 13px;"><sup>1 </sup>Transamerica Center for Retirement Studies. "The Multigenerational Workforce: Life, Work, & Retirement 24th Annual Transamerica Retirement Survey of Workers." Published June 2024. Accessed December 2024.</p>

7 Smart Ways to Help Build Wealth in Your 20s

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7 Smart Ways to Help Build Wealth in Your 20s