Embarking on a journey towards financial prosperity in your 20s is extremely admirable and powerful. You are still young and have loads of time on your side, which is arguably the most important ingredient to building wealth. The longer you can allow your money to grow, the more time compound interest has to work its magic.

With that in mind, we’re going to cover 3 simple steps to set yourself up for financial success and wealth in the future. While it may be “simple” to get rich, it certainly is not easy. It takes a lot of dedication, willpower, hard work, and certainly some luck, but it is relatively straightforward and doesn’t require you to be born with a silver spoon or to win the lottery. With that all in mind, let’s dive into the only 3 things you need to do to get rich in your 20s.

Set Clear Financial Goals

Certainly, a big part of becoming rich and financially prosperous is simply seeing a large number in your bank and investment accounts, and owning a nice house and car. However,  getting rich isn’t just about money; a large part of being “rich” is personal. That requires defining what having a fulfilling and rich life means to you. What use is having a ton of money if you’re not happy or satisfied with the outcome. 

Start by clarifying your financial goals. You don’t have to lock down a specific amount of money that would allow you to retire but try to figure out a ballpark range that would make you feel like you’ve made it. There is a large difference in the amount of investment required to get to a million dollars versus say five million dollars. And accordingly, the lifestyle that can be achieved is much different. Work backward and think about your current lifestyle and what you are trying to achieve. This can set the tone for your financial journey, and help set concrete milestones that will keep you going towards the end goal.

Craft a Budget with Purpose

Now that you’ve established your goals and milestones you need to craft a budget that can help you achieve those goals. Having goals and a purpose for your budget is the key to your financial success. 

Start by categorizing your monthly expenses into essential and non-essential spending. Things like housing, transportation, groceries, utilities, and wellness are all essentials. Though you can certainly overspend on “essentials” by getting an expensive car or expensive groceries, these expenses are usually unavoidable. At a bare minimum, your monthly income needs to be able to cover your essentials. Then you have room for the non-essentials, like eating out and buying clothes.

Once you’ve broken down your expenses, work backward and allocate money to investing and saving for your future goals. By allocating this money first, it makes it a lot harder to squander it on unnecessary things. You can also set up an automatic transfer to your retirement account or savings account every paycheck, which can help take away the mental toil of doing so manually.

Invest Early and Invest Wisely

Simply saving money every month won’t make you rich. You need to invest your money. We’ll cover investing more in-depth in future posts, but the gist of it is that you cannot simply hold your money in cash earning a measly 1 or 2 percent per year. If you remember compound interest, just a few extra percent per year can net you a gigantic difference over a 40-year time horizon. Since you’re still in your 20s, you have a ton of time for your money to compound and grow exponentially. You also can wait out any economic downturns and see your money balloon over time. 

Do not get into the hype of trading or following random people online who claim they can double your money in a year. If someone is truly able to double their money every year, why would they sell that information instead of doing it themselves? They would be able to turn $100 into $100 million in 20 years. All you need to do is invest in the broader market, through index funds or ETFs like VOO, SPY, QQQ, etc. Just keep buying and holding. There will be periods of time when you are losing money, but do not panic and remember that over the long term, the broader stock market tends to go up.

Conclusion

Setting yourself up to get rich in your 20s is more than just a goal; it’s an achievable reality with the right mindset and strategic steps. While it may not be possible for everyone to achieve these goals in their 20s, depending on your income level, taking these steps in your 20s will set you up for financial success for the rest of your life, and can ensure that you have a very comfortable traditional or even early retirement. These three simple things are all you need to begin and kickstart your journey to wealth. Let’s make your 20s a decade of financial empowerment.

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.