Have you come across $20,000 extra dollars? If so, congrats! But, now you have to figure out what to do with it.
If youre not sure how to spend or save it, the below article is all about what to do with 20k.
And finally, if you’re just looking to get more comfortable with money management, be sure to download this free monthly budget template.
Now, lets get into it. These are some of the smartest ways you can invest $20,000—
You’ve saved $20,000 in your 20s? First, good job! That’s really impressive. If you have $20,000, you are ahead of most of your peers. This could be because you worked hard, got an inheritance, got a bonus, or just got lucky.
But now comes the tricky part – figuring out what to do with all that cash. Your 20s are a pivotal decade, and the financial decisions you make now can literally shape the rest of your life.
I’ve put together this comprehensive guide to help you make smart choices with your $20K that your future self will thank you for Let’s dive in!
Why Your 20s Are Crucial for Financial Decisions
Being in your 20s is a financial sweet spot. You have time on your side, which is literally money when it comes to investing. Consider this mind-blowing fact: if you start saving just $14 a day at age 23, you could accumulate $1 million by retirement age! But wait just 7 years to start, and you’ll need to save 25% more. Wait until 35, and you’ll need to save more than twice as much.
The investing lesson? Start as early as possible!
Prioritizing Your $20K: The Smart Way
Before we jump into specific investments, let’s establish a framework for decision-making:
- Handle emergencies first – Having a safety net is priority #1
- Eliminate high-interest debt – This gives an immediate, guaranteed return
- Invest in yourself – Your skills and education have lifetime returns
- Build for the future – Once the basics are covered, think long-term
Now, let’s explore your best options:
1. Create an Emergency Fund
Before anything else, make sure you have 3-6 months of necessary expenses saved in a high-yield savings account According to experts, a healthy emergency fund is essential before more aggressive investments
Most financial experts say that you should have around $20,000 saved by age 25. If you don’t already have this safety net, this is a great way to spend your money.
2. Pay Off High-Interest Debt
If you have credit cards or loans with interest rates above 6%, paying them off is probably the best thing you can do with your money. Why? Because getting rid of the interest rate on your credit card debt gives you a guaranteed return right away, which is something no investment can promise.
For organized debt payoff, try the debt snowball (smallest balances first) or debt avalanche method (highest interest rates first).
3. Maximize Retirement Contributions
You should use the power of compound interest when you are in your 20s. Consider these options:
- Match your employer’s 401(k): If your employer offers a match, this is literally free money. Contribute at least enough to get the full match.
- Open a Roth IRA: Unlike traditional retirement accounts, Roth IRAs grow tax-free. That means when you withdraw money in retirement, you won’t pay taxes on any of your investment growth!
- Automate your investments: Set up automatic transfers so you never “forget” to invest.
Let’s look at the math: If you invest your entire $20K in a retirement account at age 25 and never add another penny, at a 7% annual return, you’d have about $280,000 by age 65. That’s the power of starting early!
4. Invest in Your Education and Skills
Your 20s are prime time for developing skills that can increase your lifetime earning potential:
- Further education: Consider if a degree or certification could boost your earning potential
- Professional development: Courses, conferences, and training that enhance your marketability
- Start a side hustle: Use a portion of your funds to launch a business that generates additional income
5. Consider Real Estate Investments
In many parts of the country, $20K could be enough for a down payment on a starter home or investment property:
- House hacking: Buy a multi-unit property, live in one unit and rent out the others
- REITs (Real Estate Investment Trusts): Invest in real estate without the hassle of being a landlord
- Crowdfunded real estate: Platforms allow you to invest in properties with smaller amounts
6. Build a Diversified Investment Portfolio
If you’ve covered the basics, consider building a balanced investment portfolio:
- Index funds: Low-cost funds that track the overall market performance
- Dividend stocks: Companies that pay regular dividends to shareholders
- ETFs (Exchange-Traded Funds): Baskets of stocks that trade like individual stocks
For a beginner investor in your 20s, a simple portfolio might be:
- 70-80% broad market index funds
- 10-15% international funds
- 5-10% bonds
- 5% in individual stocks if you want to try stock picking
7. Start a Short-Term Savings Plan for Major Purchases
Planning to buy a car or home in the next 1-5 years? Consider these options:
- High-yield savings accounts: Currently paying 4-5% interest
- Certificates of Deposit (CDs): Can offer rates above 5% for fixed terms
- Money Market Accounts: Often pay higher interest than regular savings
8. Expand Your Financial Knowledge
Allocate a small portion of your funds to building financial literacy:
- Books on personal finance and investing
- Courses on financial planning
- Financial advisor consultation: A one-time session with a fee-only advisor
9. Experience Life-Enriching Activities
While I’m big on saving and investing, your 20s are also about building experiences and memories:
- Travel: Solo travel can be both enriching and eye-opening
- Trying new activities: Whether it’s skydiving, learning a new language, or taking cooking classes
- Volunteer work: Contributing to causes you care about
Just keep this portion of your spending reasonable – perhaps 5-10% of your total funds.
10. Prepare for Major Life Changes
If you’re anticipating major life changes in the next few years:
- Wedding fund: The average wedding costs over $30,000
- Home down payment: Start saving for your first property
- Family planning: If kids are in your future, start a fund for those expenses
25 Actionable Steps to Make the Most of Your $20K in Your 20s
- Set up an emergency fund covering 3-6 months of expenses
- Pay off high-interest debt starting with the highest rates
- Contribute to your employer’s 401(k) at least up to the match
- Open and fund a Roth IRA ($7,000 annual limit as of 2025)
- Take a financial literacy course to improve your money management
- Learn to cook to save money and eat healthier
- Create a budget and tracking system for your finances
- Buy term life insurance if you have dependents
- Consider disability insurance to protect your income
- Invest in index funds for long-term growth
- Open a high-yield savings account for short-term goals
- Build your professional network by attending industry events
- Start a side business with a small portion of your funds
- Take a solo trip to gain independence and perspective
- Learn about real estate investing even if you’re not ready to buy
- Cut unnecessary subscriptions and optimize your spending
- Get a health check-up and address any issues early
- Build your credit score by responsible credit card use
- Learn a high-demand skill through courses or certifications
- Start a CD ladder for medium-term savings goals
- Join professional organizations in your field
- Create digital backups of important documents
- Consider a 529 plan if you plan on further education
- Volunteer for causes you care about
- Develop healthy financial habits that will serve you for life
How NOT to Spend Your $20K
While there are many smart ways to use your $20K, here are some approaches to avoid:
- Gambling or speculative investments with money you can’t afford to lose
- Buying luxury items that rapidly depreciate
- Investing everything in a single stock or cryptocurrency
- Lending large amounts to friends or family without proper documentation
- Spending it all on temporary experiences with no long-term benefits
Key Takeaways
Having $20,000 in your 20s gives you an incredible head start on building wealth. Remember these principles:
- Safety first: Build that emergency fund
- Eliminate drags: Pay off high-interest debt
- Harness time: Start investing early for retirement
- Diversify: Don’t put all your eggs in one basket
- Balance: Include some experiences alongside practical investments
The decisions you make with this money could quite literally change the trajectory of your life. Be thoughtful, do your research, and when in doubt, seek advice from financial professionals rather than just friends or social media.
And remember, personal finance is personal! The right way to use your $20K depends on your unique situation, goals, and values.
What smart moves have you made with your savings? Share your experiences in the comments below!
What is the Smartest Thing to Do With 20k?
The smartest thing you can do is pay off debt.
You could pay off debts with interest payments and save that interest. This is the same as earning it by investing, but paying off debt gets you a return that you can count on.
If you dont have any debt, then build up a well-balanced investment portfolio.
There are many things that could work best for you, but most people should stick to mutual funds, index funds, and maybe even bonds and make sure they are well-balanced.
What to Do With an Inheritance
If it comes from a loved one, the first thing you should do is give yourself time to grieve. When you’re feeling down, you might not be able to think clearly about how to spend your money, so don’t act quickly.
While youre doing that, stick the money in a savings account. You could choose high yield savings accounts so its also earning some interest while you wait.
Once youve taken the time to start the healing and grieving process, then you can start making plans with the money.
How I Would Invest $1000 If I Were In My 20s
FAQ
Is 20K saved at 25 good?
Median salary at age 25 is $43k. Financial advisors suggest having half of your annual salary saved by age 25, so $20k.
What is the smartest thing to do with $20,000?
You can try your luck with individual stocks or even something more risky, such as bitcoin or other cryptocurrencies. You could also invest in gold or consider using the $20,000 as a down payment on a rental house. Perhaps the best advice here is to buy something you don’t already own.
How can I double my $20,000?
Invest in broad market index funds. After taking into account inflation and long-term trends, you can expect your money to double every 9 years even if you don’t add any more. The more money you invest, the faster it grows. Consider 100% VT for maximum global stock diversification with a very low expense ratio.
What is the 7 3 2 rule?
The theme of the rule is to save your first crore in 7 years, then slash the time to 3 years for the second crore and just 2 years for the third! Setting an initial target of Rs 1 crore is a strategic move for several reasons.
What should you do in your twenties?
You’ll only be twenty-something once, so enjoy it while you can and get ready for a better life. Want to make the most of it? If so, start with these 25 things you must do in your twenties. 1. Do something scary. Jump out of a plane. Dive in a shark tank. Zip-line through a rainforest. 2. Learn to cook.
Should you learn in your 20s?
The more you learn and the more you try, the more you get to know yourself. And if you’re out of debt, make it a point to travel somewhere new. These are all ways to learn, grow and develop a well-rounded world view. Learning in your 20s is a great habit to establish early and maintain throughout your life.
How do I start a new career in my 20s?
Pick up a hobby. It’s so important to have something outside of work, to look forward to work on. Even if it’s just learning a new skill, like maybe learning to grow a garden, or pottery, or just cooking. And don’t be afraid to try new things. To be bad at new things. You’re going to have a lot of “firsts” in your 20s, embrace it!.
What is life like in your 20s?
Between graduating, starting a career, potentially moving to a new city or into a new home, getting married, and countless other life-defining events, your 20s are years filled with new experiences, opportunities, and life lessons. Among the most important, and confusing: Figuring out your finances.
Is learning in your 20s a good habit?
Learning in your 20s is a great habit to establish early and maintain throughout your life. If you create a life of intentionally living out the six choices outlined in this book, you’ll be able to better respond to whatever life throws at you and build a more peaceful, joyful, non-anxious life. 10.
Should I start investing in my 20s?
Learning to invest in your 20s will take you places. Someone who starts investing at 24 (even with a small amt of money) will end up having more savings than someone who starts at 32. I know it doesn’t come naturally to a lot of us. But take courses & read books. Here are some of the amazing money books you need to get into :