Seven BEST Places to Put Your Money in Your 20s

So as somebody who’s turning 26 years old in just a couple of weeks, in this blog, I wanted to talk about investing in your 20s and the 7 places that I prioritize putting my money. Back when I graduated from college at Penn State almost 4 years ago, I started hearing many different things about what I could be doing with the money that I was now starting to earn as I was working my first full-time job.

I’d hear people say that I needed to keep my expenses low and save, invest early so that I could take advantage of compound interest, contribute to a 401k, and a whole bunch of other things like that, but I didn’t know where to start. So after a lot of research, making a few mistakes here and there, and then learning from that research and those mistakes, I wanted to write a blog to discuss some of the best things that we can do with our money to set a solid financial foundation.

Now, a lot of the things that I want to talk about here are going to apply to just about everybody, not only those people that are in their 20s and not just people that went to college, but this is just all from my experience. So if you’re in your 20s like me and you’re reading this blog, then hopefully you’ll find some useful things here and maybe get some ideas.

1. Emergency Fund

So number one, the first place to put your money, and this is really something that I prioritized once I began to have consistent income, is going to be an emergency fund with three to six months’ worth of expenses. Now, this emergency fund is something that I wanted to prioritize because, the way that I view it, an emergency fund is almost like a cushion against life’s unexpected expenses, and it can buy you time to land on your feet if something ever happens to your income or if your business goes away.

I knew that if I got an emergency fund in place right away, then if something happened, like maybe my car broke down and I needed to get tires, or maybe my laptop got stolen or lost, or something like that, then at least I would have the cash on hand to be able to cover those expenses, and I wouldn’t have to potentially resort to going into credit card debt for that. And I’ve said this before on my website, so I’ll say it again.

I realized that everyone out there has their own situation with their own financial difficulties and hardships, so it may be tough for you to be able to generate some extra cash to put towards an emergency fund, and I want to write some more blogs in the future about a few different ways that I’ve been able to generate extra income on the side for myself while also reducing my expenses so that more cash is left over to spend, save, and invest.

Now, before I get into my second point about emergency funds, I like to keep my money as liquid as possible, so the cash that I keep in my emergency fund is not tied up in investments like stocks or cryptocurrency or anything like that. That’s because, first of all, this money is not a major part of my portfolio, it’s just something that I use for short-term emergencies, and if I ever take money from the account that it’s held in, all I do is, when I have future earnings, take a little bit of extra money and then put it back into that account.

And second of all, because it’s for short-term purposes, I don’t like to have my emergency fund inside of an investment, because that investment could fluctuate in price over the short term, and if I had to sell that investment for some reason, then there could be some possible tax implications later on as well. So I just keep it in a high-yield savings account, and I know that inflation is really high right now, and it’s just much higher than whatever interest rate I’m earning inside of that account, but I’m okay with that because I just want the convenience of having quick access to that cash.

2. Paying Off High-Interest Debt

And now, the second place I’ve learned to prioritize putting money in your twenties, and this is a big one, is paying off high-interest debt. I know that I talk a lot about credit cards here on this website and how to use them correctly and responsibly in order to get some cash back and some points that you can use for free travel. Of course, I’ve talked about the fact that in order to do this, you cannot be carrying a balance month to month, and you cannot be paying interest on your credit card debt because if you do that, that is just going to far outweigh any of the benefits that you do get from credit cards.

And I think that a lot of you who read my blog regularly think the same way about credit cards, but I still like to mention it here because high-interest debt, including credit card debt, is something that affects millions of Americans across the country. Now, when I say “high-interest debt,” I’m really talking about anything with double-digit APRs, but I think you can also really classify anything with an APR of around 6 or 7% or higher as high-interest debt that you should definitely make a priority to pay off in your 20s.

I mean, if you think about it and you choose to invest your money instead of first paying off that high-interest debt, you’ll have to generate a return on investment that is greater than the high-interest rate that you’re already paying on your debt, which is extremely difficult to do consistently. So that’s why it’s better to just pay off that high-interest debt first, because by doing that, your return is actually going to be equal to the amount of interest that you’re saving yourself from paying.

3. 401k

Now after that, we’re going to go to the third place that we can look to put our money in our 20s, and this is something that is going to just vary from person to person depending on your situation, depending on your employer and depending on what’s offered, but the third place that you can put your money is going to be a 401(k).

Now, a 401k is an employer-sponsored tax-advantaged retirement account, and if it’s not available to you, then you may have something similar, so just contact your employer to see what you can contribute to, or do a quick Google search, and that should help you as well. But what this means is that a 401k is something that both employers and the government use to incentivize people to save for retirement, and this is something that we can take advantage of. There are sometimes different types of 401(k)s available from your employer, like the traditional 401(k) and the Roth 401(k), and these have similar goals, but they also are a little bit different in terms of their tax advantages.

I’m not going to be getting into that type of detail in this blog. What I am going to focus on here with a 401k that we can take advantage of is something called the company match. Now what many employers will do is they’ll say, okay, employee, if you contribute a certain percentage into your 401k plan, we’ll match that up to a certain percentage. So as an example from one of my previous employers, I believe what they did was they would give me 50 cents for every $1 that I contributed up to 6% of my paycheck.

And the reason that I learned to prioritize contributing to my 401(k) up to that company match is that that’s free money. So what I’m doing is contributing to my retirement plan, but my employer is also supplementing that for free. Now with a 401k, you’re not going to be able to withdraw any money from that account without paying a penalty, at least until you get closer to that traditional retirement age.

But this can actually be a good thing because the fact that you just have to let that money sit there for the next 40 to 50 years means that you don’t have to do much at all. You can just let that money grow for you. Just make sure that you actually do invest the funds within your 401(k), because remember, a 401(k) is just a type of account. It is not a true investment in and of itself. You have to choose the individual index funds, target date funds, or whatever else is available to you from your employer within the 401(k). You don’t do that. The money is just going to sit there, and it’s just going to be like a checking or savings account. 

4. Health Savings Account

Now on to the fourth place that I’ve learned to put my money in my 20s, and this one is something that is highly, highly underrated, and that is going to be a health savings account, otherwise known as an HSA. So an HSA is something that you’re only going to be eligible for if you have a high-deductible health insurance plan. There are a few reasons why this might be something that you want to look into in your 20s. First of all, people in their 20s are typically healthier on average than people that may be a little bit older, and that’s just how we age.

And even though you may be pretty healthy in your 20s, you definitely should still be covered under some sort of health insurance plan, but you might not want to pay too much each month for that coverage. Well, with a high-deductible plan, that’s exactly what you get: lower monthly premiums, but just like the name suggests, you are going to have a high deductible that you have to pay for any out-of-pocket expenses.

But that’s where an HSA comes into play to help you maximize what you can do with your money because an HSA is really the ultimate tax-advantaged account. You can contribute up to a certain amount, pre-tax, I believe the limit was $3,600 in 2023. And then that is going to lower your taxable income and save you money on taxes there. You can use the funds from your HSA to pay for a wide variety of qualifying medical expenses with pre-tax money.

So again, there’s more buying power there compared to if you use post-tax money, like money that’s already in your checking account from a paycheck with the taxes that have already been taken out of that. And best of all, you can invest the money in your HSA, where it can grow tax-free. So I decided to max out my HSA each year so that it could benefit from all of those tax breaks.

And I also didn’t even mention this before, but a lot of employers out there, including my own, will contribute a certain amount of money to your HSA for you so that’s some more free money right there. I also typically don’t touch any of the money in my HSA. So if I ever have a medical expense, I’ll just pay for it with a regular credit card and then I’ll keep the money inside of my HSA so that it can grow tax-free.

And then later on in life, since we all tend to have more medical expenses as we get older, I’ll be able to use any of that money that’s grown tax-free in my HSA to pay for those medical expenses. I can also withdraw money from my HSA after age 65 to pay for non-medical expenses after paying some income tax on that amount that I withdraw. So in the very worst-case scenario, my HSA is just going to become another IRA. So being in my 20s and on a health plan with an HSA is something that I’m really glad I found out about and that I’m taking advantage of.

5. Roth IRA

Now for the fifth place that I’ve been putting my money, this is going to be one final tax-advantaged account, and that is the Roth IRA. Now the Roth IRA is a very powerful type of investment account that I have opened up with Vanguard, and I’ve managed to max out that account for the second straight year at the $6,000 income limit for 2023.

For anyone that’s not familiar, a Roth IRA is another type of retirement account where you could contribute post-tax money, so that’s money that’s already been taxed. You can invest that money within this account in whatever you want—index funds, ETFs, mutual funds, stocks, and a whole bunch of other different options—and that money is going to grow inside those investments tax-free.

I just have to wait until at least age 59 and a half to withdraw any of the earnings that I’ve accumulated within that account without having to pay any extra penalties or taxes. Now there’s a whole bunch of other cool things that I could get into much more detail about with the Roth IRA, but I’m not going to do that in this blog.

One thing that I do want to focus on here though is the fact that you can withdraw any contributions that you’ve made to your Roth IRA without having to pay any penalties or taxes because, remember, that’s all post-tax money that you’ve contributed to the Roth IRA account, so you’re free to take that money out of the account if you actually want to.

I don’t plan to withdraw any of that money from my Roth IRA until I’m much, much older, but it’s nice to at least know that I have that option if I need that for some reason whatsoever because you can’t do that with a traditional IRA or with a traditional 401k. So, a common theme here is for me to invest what I can for early retirement while also taking advantage of any company matching. That way, any money that I contribute to all these accounts can grow over time and take advantage of compound interest. 

6. Taxable Brokerage Account

And that leads me to the sixth place where I’ve learned to put my money, which is going to be a taxable brokerage account. Now, this is something that I do as well, and I have a few different taxable brokerage accounts, but I like to invest in things like index funds and ETFs just because they’re much simpler, they’re very diversified, and it’s easier to invest in those things compared to picking individual stocks.

I do own a few individual stocks as well, but I’ve learned to be very careful when choosing stocks that I want to invest in because there’s a lot of work that needs to go into it if you’re going to do it the right way. You really should be trying to read their earnings reports, read their 10-Ks, listen to any earnings calls, read with the analysts, or ask them questions so that you can form your own opinion about the company.

And this could be a lot of work, but if you’re willing to put in the work, or if you just believe in the company that you want to invest in, then a taxable brokerage could be a great place for this, and it’s something that I do after I’ve taken care of all the other things that I’ve talked about throughout this blog. I guess you can also throw investing in cryptocurrencies into this category and into this place where you can put your money as well.

But I do want to warn you here that investing in crypto is definitely a little bit riskier than some other assets out there, just because cryptocurrency is still very new. So I’m going to keep researching and educating myself in this space, and then gradually allocate a small percentage of my portfolio to various cryptocurrencies.

7. Investing In Yourself

And now finally, the seventh place to put your money, and this is something that you can be doing every single day and simultaneously while you’re doing all these other things that I’ve talked about in this blog, and that is going to be investing in yourself. Now, I know that sounds very obvious and probably a little bit cliche because so many other people say it, but it’s very true.

You can put a little extra money into things like books, or classes where you can learn and develop newer existing skills, or you can just put your time into learning something new because the internet is an amazing resource that’s literally at your fingertips, and there’s so much knowledge out there and so many great resources and information that’s available to you whenever you want and almost completely free.

Whether it’s reading a blog, listening to audiobooks, or listening to podcasts, there are just so many ways that you can invest a little bit of time in yourself to learn new things and develop your skill sets, and I think that’s a much better use of your time in your 20s instead of playing video games or watching too much Netflix or something like that.

Doing these things could give you the ability to generate some more money or could give you the idea to start a new business, so really, the return on investment from investing time in yourself is kind of unlimited. One of the main reasons why I started this website was because I just wanted to write about my experiences with money and start a conversation with anyone out there on the web that was willing to read because I love to learn and talk about stuff in addition to any of the credit card posts that I write.

So let me know what you thought about this post in the comment section below, and also feel free to leave any other advice that you have for investing in your 20s as well. Of course, nothing in this post is financial advice, so make sure you speak with a financial professional before you make any decisions with your money by yourself.