How much should you have saved up by 25? And what types of debt should you pay off first in your mid twenties
7 min read
You might be 25 and asking yourself how much you should have saved up by now? It's a widely accepted financial rule to save 20% of your income for emergencies, retirement, and major purchases like a car or a home. So for example, if you've been earning $50,000 per year since you graduated university, then you should have about $30,000 saved up! Which would put you in tremendous financial shape when compared to the average American's savings account of $5,900 (for those that have one).
Your mid twenties are a complex time full of many financial mistakes, and long term plans just created and in its earliest days. This happens to everyone, but if you have debt to take care of it can and should be done while also saving. See below for a bonus tip on whether you should pay off your student loans before or after paying off your credit cards.
Saving at 25 is far easier than before, you're beginning to earn more and possibly moving up in your career quickly. If you don't have much extra money after paying your bills, don't focus too much yet on saving 20% of your income. Your real goal is to learn to live on less than you earn and save the rest. This will establish incredible habits that will build discipline for when your earning power grows every few years to stray away from lifestyle inflation.
Unless you have private student loans with abnormally high interest rates, you're most likely paying the most interest on any credit card debt you're carrying. This is especially prominent in your early to mid twenties because more often than not your credit score may not be the highest, which in turn produces the highest interest rates on credit card debt! Focus on paying off first and then tackle those.
If you have federal loans, take advantage of the automatic forbearance that's in effect through at least February, 2021, due to COVID-19. Put your loan payments toward credit cards and private student loans that are still accruing interest. And don't forget, although the chances are slim, there is still some talk to cancel $10,000 worth of student debt which makes the importance of prioritizing credit card debt even more obvious.
Looking to refinance your student loans? Look no further, Purefy has you covered! Purefy’s free tools let you compare private student loans to find your lowest interest rate and the right repayment terms for your unique financial situation
You're young, you started making money, begin enjoying it while still being responsible and saving for all things life throws our way. Saving for retirement is most impactful in your 20's, saving for a home requires preparation, and saving for emergencies is key to avoiding taking on debt when when accidents happen. There's a lot to take in, but small actions compounded with time will leave you well prepared to build a life with little to no financial mistakes. Begin today, no contributions are considered too small!