Note: This post was first published in November 2019 and updated in September 2022.
If you are in your 20s and reading this, let me promise you one thing.
At some point in the future, there will come a point in your life where you will think to yourself:
Ahh. If only I knew / did / thought / avoided [insert one] this earlier!
That thought may even be accompanied by a slap on the forehead.
The force of the aforementioned slap will likely correlate with the magnitude of whatever mistake or oversight you are trying to fix.
In other words, this:
Life can have a funny way of being the best teacher there is – but only for those lessons to come way too late to make a difference.
It’s kind of like going to primary school in your 70s. Could be fun but utterly useless.
Helpfully, in many areas of our life, society sets out certain parameters that can help us prevent doing serious damage to ourselves.
Hard drugs are illegal. Alcohol and tobacco are expensive. We have these annoying things called speed limits.
Like them or not, all of the things above are there to help you make it to your 30s and 40s in one piece, with most body parts still attached and functioning.
Unfortunately, the same doesn’t apply to saving, investing, and building wealth.
Leaving mandatory workplace pensions or 401(k) plans aside, we largely stumble through the first decade of our working lives. We have a vague awareness of the need to look after our financial situation – but never really get to it.
And then, typically in our 30s or 40s, we finally realize the scale of the missed opportunity.
Cue in that slap in the head, probably one of the stronger ones.
So if you are in your 20s and looking to make the kinds of financial decisions that help you build wealth AND avoid self-harm in the future, please read on.
Six Rules For Building Wealth In Your 20s
#1: Invest In Yourself Early On
Do you know what your biggest income-producing asset is?
Nothing will have a greater impact on your ability to live a rewarding life full of health and wealth than the combination of your education, skills, and network.
And while learning can and should be a lifelong process, the sooner you can start putting your knowledge and abilities to use, the more time you have to extract a return on them.
What that means in practice is that you need to finish your education as early as possible. If you want to do an advanced degree, don’t wait too long.
I graduated from my MBA program when I was 31. While there were good reasons for it (more on that below), I often wish I got it done two or three years earlier.
Having that extra time would be invaluable when it came to tackling the student debt I had accumulated.
To be perfectly candid, it would also help withstand the pressures of investment banking, especially in the early years.
So don’t delay. The sooner you can start putting your human capital to work, the more compounding runway you’ll have.
#2: Become A Money Expert
One of the few fundamental truths in life is that people who don’t understand money rarely get rich.
The good news is that you don’t need to be a genius to be wealthy.
As a matter of fact, geniuses rarely get wealthy as they tend to overintellectualize things all the time. Lucky for the rest of us I suppose.
You do, however, need to have a solid understanding of the basic principles of growing your net worth:
- The importance of budgeting and spending less than you make
- Basic principles of investing: the concept of compound interest, the relationship between risk and return, and the advantages of passive investing over active money management
- The concept of inflation and the danger it poses to your purchasing power over time
- Differences between the key various asset classes (cash, bonds, stocks, real estate)
- The various wealth-building tools at your disposal
- The basics of taxation and tax-efficient investing
Most importantly, remember that there are only a few money decisions that actually matter in life.
Focus on the big stuff, and the rest will take care of itself.
#3: Put YOUR Oxygen Mask On First
As you enter the workforce and finally start making money, things change.
You are finally in a position to help out your parents and relatives, lend a hand to your friends and contribute to charitable causes.
While all of the above are worthwhile endeavors, the most important thing you can do is get yourself on solid financial footing first before helping others out.
There’s nothing egotistical about it. It’s just that you can’t really help others if you fall down the first time life kicks you.
Besides, when it comes to helping others the gift of time is often much more valuable than money.
So pay off your debt and establish an emergency fund before you do anything else.
#4: Keep Your Expenses Low
When you are in your 20s, you often have little money, limited earning power, and very few tangible assets.
However, you’ve got absolute loads of the most important asset there is:
Being in your 20s means that the lever you have to realize investment gains over time is as long as it will ever be.
You’ll never have as much leverage as you do today
And the best way to make use of it is to reframe your thinking about spending money.
For example, assuming a 7% investment return, every $10 you save and invest today will turn into $107 in 35 years.
So the true cost of that extra pint in a pub is £53.50 and not £5.
The $600 weekend city break? That’s $6,406.
That extra $900/month on rent because you don’t want to live with your parents or roommates? That will actually be $9,600/month, please.
If there’s one thing I hate about personal finance, it’s what I call the latte lies. Don’t believe anyone who tells you that the only way to get rich is to deny yourself every single pleasure in life.
Equally, be intentional. As Ramit Sethi says: spend frivolously on things you care about and cut back ruthlessly on the things you don’t.
#5: Start Investing As Early As You Can
Saving money is important. You know what’s even more important?
Putting it to work.
Yes, Covid. Yes, valuations. Yes, inflation, war, China, Russia, Iran, my-brother-in-law-thinks-it’s-a-bad-idea, deficits yadda yadda yadda.
None of this matters when you have a long enough time horizon. Take advantage of it by starting to invest ASAP.
Contribute to your company’s workplace pension.
Build an index fund portfolio. Get on the housing ladder, even if it means buying a tiny place in the dodgiest part of town.
Don’t have money to invest? Get a part-time job or a side hustle.
In other words, please don’t be a silent witness while the market does this:
#6: Take More Shots
When I was three years into my first job, I took a leave to start a business.
I then spent a year working 100 hours/week trying to get it off the ground. Unfortunately, it never got enough traction and I had to fold.
Devastated, I went back to work for my old employer. More than a few people sniggered.
A year later, a few of my friends and I were applying for MBA programs. All of us had the audacious goal of getting into one of the top 5 US MBA programs.
Surprisingly, I was the only one to get in. Later, the school’s admission officer told me that it was my failed business experience that made all the difference.
In a pile of nearly-identical applications, my profile stood out – because I actually took a risk.
Everyone else was too worried about creating the “perfect” MBA profile.
No one cared that I failed. In fact, everyone knew that had I succeeded, I probably wouldn’t need an MBA in the first place.
The life lesson here is: if you want a guaranteed way to start scoring more goals, you need to take more shots.
Whether it’s pushing for a promotion, changing jobs, pushing for a pay increase, or even starting a business – it’s probably worth it.
The worst thing that will happen to you is you will fail.
Yes, losing sucks. But guess what?
You are young enough to absorb the impact and move on.
And the experience you’ve gained will likely continue to benefit you for years and decades to come.
Remember – You Are Already Rich
There are few sure things in life. I can’t predict the future any better than the next guy.
Do take my word for it – you will never have the same amount of health, energy, and youthful looks as you do today.
Remember that – because life has a habit of sneaking up on you.
The other day, I woke up to notice the first strands of silver in my hair. Climbing four flights of stairs gets tougher on your knees all of a sudden.
And while it may seem counterintuitive to you now, come 9 pm on a Friday night you often feel like curling up with a book as opposed to going on yet another bender.
I think it was Monevator who once wrote: if you are young, you are already rich. I couldn’t agree more.
Remember – your 20s is a truly special time.
Follow the rules above. Enjoy it. Make the most of it.
As always, thank you for reading!
PS: If you are not in your 20s anymore, don’t despair – there’s still plenty of time to rev up the engine.
Here are my top five tips on how to build wealth in your 30s.
Cleared the 40 mark? Have no fear – because this is how to build wealth in your 40s.
And we have some advice for folks in their 50s, too!
About Banker On Fire
Enjoyed this post?
Then you may want to sign up for our exclusive updates, delivered straight to your inbox.
You can also follow me on Twitter or Facebook, or share the post using the buttons above.
Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
Find out more about me and this blog here.
If you are new to investing, here is a good place to start.
For advertising opportunities, please send an email to bankeronfire at gmail dot com
15 thoughts on “How To Build Wealth In Your 20s: Updated For 2022”
Good post – mid-later 20s but I can resonate.
Coming back to the point of actually spending money on things that will make a difference (and ironically since you mention rent in this post), my partner and I have been caught by the pandemic in a 1-bed flat that we got for a good price 30s from a tube station in a central location.
I’m a big advocate of not spending stupid money on rent so I’ve had to rewire my thinking to accept paying up more for a larger 2-bed that’s further away after WFH for 2 people in a living room took its toll. I realized this impacted my working out habits (no proper space etc.) and general happiness (frustration: I work so damn hard and won’t give myself some much needed space I can objectively afford?), so it’s something that has long term benefits in many ways.
I guess the lesson is that you really need it to hurt first to realize what’s important and what you’ll be happy spending more on because you’re getting a tangible benefit. Perhaps it’s a healthy approach to do things incrementally and upgrade on what you have only once it can no longer serve its purpose – be it a house, running shoes, boxing gloves or anything else.
We are in a similar spot, having moved from a 2 bedroom place to a 4 bedroom house.
This was a few months before a pandemic and mostly driven by the fact that we were expecting our second child and the property ticked all the boxes.
That being said, paying to live in a large place steps away from parks is the best money I’ve spent in a long time. Can’t say that for many other things – but then again, everyone has got their own preferences. Beauty in the eye of the beholder and all that.
Apologies for the unrelated question – but whilst we love index trackers what are your thoughts on the (apparently imminent) ‘short squeeze’ on GME?
I think it’s fascinating. Not because of fundamentals (I haven’t done the work to figure out if the company is fairly valued).
Rather, it’s because amateur day traders seem to be squeezing the sophisticated hedge funds who were shorting this stock in the first place.
All fair game but I wonder how many people will lose their shirts when the market corrects.
Great article I’m in my late/mid twenties now, feel pretty lucky that I picked A lot of these tips up early on in life. Are certainly a few things I’d have done different in hindsight, such as the amount of cash I held vs invested but overall I think I’ve done pretty well 😀 I remember having a 5% saving account with Santander, but als those days are gone now.
Ah yes, the days of non-zero interest rates on cash 🙂 long gone and unlikely to return anytime soon.
One of the biggest mistakes I’ve made early on was not going all in on risk assets. My parents were great about teaching me to save – not so much to invest.
Great post. I’ve already sent to my two daughters in their 20s and asked them to share with their boyfriends.
Both girls have S&S ISAs set up by me when they turned 18 – mum and dad paid £100pcm into each when they were students, and now they contribute £350pcm each (with mum & dad continuing to chip in £100 of it).
Great that they’re building wealth but I’m struggling to get them really interested in talking / planning! Hopeful that this brill article will help!
You continue to be a fantastic blogger – sincere thanks.
I often wish someone sat me down in my early 20s and gave me the full download on how things typically go from there onwards.
Sadly that never happened. Things turned out pretty well for me, but life would sure be easier with some guidance along the way!
Excellent, this stuff should be part of schools curriculum.
Having learnt the hard way, late in life, I think its important people understand your closing words, you really can start this life plan in your early to mid thirties and catchup those lost years. Its even a realistic possibility in your 40s and beyond.
I actually did it, going from GCSE education and no career in my late 20s, to degree educated, invested in certifications and skills l, overtaking most in my career. The money I earnt later in later life dwarfed the money saved up to 30.
But its important people understand you have to do all the things in your post to achieve it.
If I could go back in the time I would do more than punch myself in the face!
I often feel the same way. Happy with where I ended up so far, but plenty of missed oppoertunities along the way.
The challenge is that most people (myself included) are often operating in an informational vacuum. I certainly didn’t have many role models who could show me the right way forward.
As a result, you end up stumbling around, looking for the right path. Almost enjoyable in retrospect, but much harder and certainly longer.
Becoming a money expert is so underrated. In school, no class actually teaches about personal finance, which is the ultimate sin. I’m so glad that I stumbled upon personal finance blogs around my sophomore year of college. Who knows what financial wreck I might be in today.
In my mind, it’s a major driver of inequality. Growing up in a family where equity and real estate investments are a norm makes you inherently more comfortable doing the same.
Much tougher to be the first one in your family to start while everyone else tells you “it’s only for rich people” or “you may lose all your money”
Thanks for another great post. I’m 27 and looking to buy this year but wanted to see if you had any thoughts on Help to Buy scheme (the equity loan) and whether using this is a good idea vs continuing to save the usual 10%?
My concern isn’t with paying the government loan back but more so with risk on exiting the investment / selling the home 5-6 years later. People talk about new builds not being great because of the potential for negative equity on the other end. Do you have any thoughts?
I think the broader point here is how house prices move forward, right? Regardless of how you finance the purchase, whether with your own savings or the HTB loan.
Tough to say really. I did a comprehensive post on buying vs. renting a few months ago – may be worth a read:
For full disclosure, I am VERY long on real estate – and yet I rent my primary residence. There’s often more than just math to it.
Pingback: Wealth Creation - 9 Principles to Build your Net Worth - MoneyGrower