Your 20s are a great time to explore new opportunities and figure out who you want to be. As a young adult, you have more freedom to do things that shape your experiences and broaden your horizons. Thus, it’s the perfect decade in your life to build a strong foundation for the future you want. However, the choices you make now can affect the stability of your future self, and nothing impacts that more than your finances.
Money management skills matter, and what you practice today will influence your financial habits and security for years to come. As you get older, your financial responsibilities will only increase. There’ll be more bills to think about, more people depending on you, and more financial goals, like building a solid retirement fund, to reach. To prepare yourself for these challenges, it’s ideal to be more prudent with your money while you’re still young so that you can enjoy both freedom today and security tomorrow. Here are some key money lessons worth knowing in your 20s.
Credit Isn’t Inherently a Bad Thing
Credit often gets a bad reputation, especially when people associate it with debt traps or high-interest payments. But when used responsibly, credit can actually be one of your strongest financial tools. For instance, if you’re able to manage borrowed money wisely and pay your balance in full on time, you’re on your way to building a healthy credit history. Having a positive credit standing isn’t only good for your profile, but it also shows lenders that you’re a reliable and low-risk borrower. This makes you more qualified to secure loans with better terms, whether they’re for a home, a car, or even a small business.
Additionally, using credit products strategically can help you save more. Take the Landers Cashback Everywhere Credit Card, as an example. This cashback credit card lets you earn credit card points that you can use as a discount on your next purchase at Landers. Each point is equivalent to PHP 1, and you can boost your points-earning potential when you use the Landers Cashback Everywhere Credit Card on certain transactions. You can get up to 5% cashback when shopping at Landers, 2% on dining spends, and 1% on all other qualified transactions.* This makes the Landers Cashback Everywhere Credit Card the best cashback rewards card for Landers Superstore members.
Opening Multiple Savings Accounts Makes It Easier to Manage Your Finances
Having just one savings account might seem simpler, but it can actually make it harder to keep track of your goals. With all your money in a single account, it can be easy to lose track of what’s meant for savings and what’s available for spending. To help you stay organized with your finances, consider opening multiple accounts and assigning each one to a specific purpose. You might have one account for emergencies, one for short-term goals like travel or gadgets, and another for long-term plans such as a down payment on a house or condo. When each account has a clear role, you can monitor your progress more easily and avoid accidentally spending money meant for something important.
To make the most of your savings, it’s recommended to choose high-yield savings accounts over regular ones. Higher interest rates help your money grow faster without any extra effort on your part. Maya—the #1 digital bank in the Philippines—for instance, has Maya Savings, a digital savings account that boasts a 3.5% p.a. Base interest rate. This is already higher than what most traditional banks in the Philippines offer, which means your funds will accumulate more interest over time. Additionally, you can boost this rate by up to 15% by simply completing Maya-related goals, making it easier to reach your savings targets ahead of schedule.
Investing Early Lets You Leverage the Power of Compounding and Long Investment Horizons
One of the biggest benefits you have in your 20s is time. You have all the time to grow your wealth, and one of the best ways to use this advantage is by investing. Starting early gives your investments more years to increase in value, making it easier to reach long-term financial goals without having to contribute large amounts later on.
This is possible due to the power of compounding and long investment horizons. Compounding means that the returns you earn on your investments also start earning returns of their own, creating a snowball effect that accelerates growth over time. A long investment horizon, on the other hand, allows this compounding effect to work to its fullest potential, since your money remains invested and continues to generate earnings for many years.
For example, let’s say you invest PHP 1,000 at a 7% annual return. After the first year, you’ll earn PHP 70 in interest, bringing your total to PHP 1,070. In the second year, you earn 7% not just on your original PHP 1,000 but also on the PHP 70 interest from the first year. This gives you PHP 74.90 in interest, for a total of PHP 1,144.90. Each year, your returns grow a little faster because you’re earning interest on both your initial investment and the accumulated interest. Over time, this “interest on interest” effect becomes powerful, significantly increasing your wealth the longer your money stays invested.
So if you start investing PHP 1,000 per month at age 25 with an average annual return of 7%, by the time you reach age 65, you could have around PHP 1.83 million. However, if you wait until age 35 to start investing the same PHP 1,000 per month, you would only have about PHP 710,000 by age 65. Even though you are contributing the same amount every month, starting 10 years later gives your investment significantly less time to benefit from compounding.
While it can be intimidating to start investing, there are simple, low-risk options that let you begin safely and build confidence. As your knowledge and risk tolerance grow, you can gradually explore more advanced investments.
Emergency Funds Are Your Best Defense Against Life’s Surprises
Life has a way of throwing curveballs, and without a financial safety net, situations like job loss or expensive medical expenses can quickly drain your resources or force you into debt. To prepare for the unexpected, building an emergency fund in your 20s can provide peace of mind and a reliable source for future uncertainties.
An emergency fund is money set aside exclusively for unexpected expenses. While it may be tempting to postpone this goal, having your own emergency fund means you can handle urgent situations without borrowing money or depending on others. The best way to start is by setting aside a fixed percentage of your income into a separate account. This makes it easier for you to avoid touching it unless it’s truly an emergency. Over time, this habit builds both confidence and security, knowing you have a cushion against financial setbacks. Experts typically recommend saving 3 to 6x months’ worth of living expenses to cover essential costs and maintain one’s financial stability during unforeseen events.
Side Hustles Can Accelerate Your Financial Goals
With the steady rise in living expenses, relying on a single source of income can make it challenging to reach bigger financial goals. In this context, having a side hustle gives you additional income streams, allowing you to take on opportunities you might not be able to with your main income alone.
The right side hustles, however, will depend on your skills, interests, and available time. They might include freelance work, offering specialized services, or starting a small online or local business. Just make sure that the side hustle won’t compromise your main source of livelihood or your well-being. To maximize the benefits, assign your side hustle earnings to specific long-term financial purposes instead of everyday spending. This could mean directing the extra funds toward building your emergency fund, for example, or making lump-sum investments and speeding up debt repayment. When done consistently, a side hustle can significantly shorten the timeline for achieving your most important financial milestones.
Even though your 20s are a time for fun and discovery, knowing what to do with your money now can set the stage for long-term stability. Developing strong financial habits early ensures that you can pursue your goals while maintaining control over your financial future. Eventually, these habits turn into a foundation of security and freedom that supports both your personal and professional aspirations.
*Transactions that don’t qualify include: cash in, cash advance, quasi cash purchases, casinos and gambling, fuel, supermarket, pharmaceuticals, utilities, telco, and government.