5 things to do with your money if you’re a woman in your 20s

Your twenties can be equal parts exciting and stressful. On the one hand, you’re likely growing your social circle, building your career and taking fun risks along the way. On the other, you’re probably figuring out how navigate office politics and stretching a small paycheck to cover all your financial needs. Mostly likely, you’re wondering what you need to do right now to financially prepare for the future.

And if you’re a woman, it’s even more important to focus on your long-term goals.

There are many reasons why women need to take an active role in their finances and building wealth. For one, women on average live longer than men and will therefore need more money saved for retirement. Yet, a September 2021 report from the U.S. Bureau of Labor Statistics highlights that women who work full-time still earn 82% of what men who also work full-time earn — in other words, women earn 82 cents for every dollar that a man makes; it’s even lower for women of color.

It’s important for young women to begin taking steps to make their money work harder for them. I spoke to Jill Gianola and Margaret Price, co-authors of the book “Single Women and Money: How to Live Well on Your Income“ to get their tips on important financial steps women in their twenties should be making.

“Your twenties is an exciting time because you’re starting your career, but you’re also dealing with loans and other debt and figuring out how to save when your paycheck isn’t as large as you thought it would be,” Gianola says.

It can often feel like you have so many financial obligations and goals to work toward all at once — especially if you struggle to cover all your expenses. One good way to alleviate some of that pressure is by looking at the benefits offered by your employer.

Health insurance can be costly if you sign up for a plan on your own — on average, health insurance costs $456 per month for individuals and $1,152 per month for a family. However, you can lower that expense by enrolling in health insurance offered by your employer. On average, employees will pay about $105 per month for health insurance when they enroll through their employer — and the money automatically comes out of your paycheck so you’re less likely to miss it.

Another common benefit offered by employers is a 401(k) plan or 403(b). With an employer-sponsored retirement plan, you can contribute a percentage of your pre-tax paycheck into a retirement account and the money is invested into assets like target date funds and mutual funds.

Some employers will automatically enroll full-time employees in 401(k) plans. But if you aren’t sure if yours does, you can always double check with HR. You should also be sure you’re contributing enough of your paycheck to receive your employer’s match. This way, your employer also contributes to your retirement savings, which can allow you to grow your account much faster. If you’re not meeting the match, you’re basically leaving free money on the table.

Many companies also offer different reimbursement programs for their employees, including discounts for services like fitness centers, coursework and financial planning. Not all employers offer such benefits, but it doesn’t hurt to ask — and if you find out that yours does, this could save you some money each month.

Almost all financial experts will recommend young people use some of their paycheck to start building an emergency fund, and Price and Gianola agree. An emergency fund provides you with a cushion of money that you can draw from to cover unexpected expenses.

There’s a lot of pressure to save and invest your money while also covering all your day-to-day expenses like rent and food. Managing your money can sometimes feel exhausting. In order to avoid this fatigue, it’s also important to use your money for some of the things you love.

You can start by taking a look at your expenses (using a budgeting app like Mint or Personal Capital) and identifying anything you’re currently spending money on but not actually using or enjoying — like subscriptions you forgot about or a gym membership you don’t use. This way, you can maximize the money you can comfortably spend on items you enjoy.

“One interesting thing we found is that many women in their twenties don’t know how to use tax credits to cut their spending,” Price says. “There are a range of tax credits and deductions like the lifetime earning credit, the child tax credit and an earned income tax credit for childless people with modest income.”

Tax credits reduce the amount of money you’ll owe. For example, if you owe $500 in taxes, but you receive a $500 tax credit, your tax liability drops to $0. Or, let’s say you owe $500 in taxes but receive a $1,000 tax credit — you’ll actually end up with a $500 tax refund. Then you could use that refund money to pad your savings account or invest more in a retirement account.

There are many different types of tax credits you can claim. For example, California residents can claim a renter’s tax credit if they pay rent and have an income below a certain level. H&R Block has a list of some other tax credits available to young people, like an education credit if you’re a student paying tuition and a credit for charitable donations. Tax credits can generally be claimed while you file your tax return.

There’s often some debate around whether you should prioritize paying down debt or investing for the future first, but Gianola recommends doing both at the same time with whatever amount you can afford.

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