In your 20s how much money should you have and how to properly use & manage it?
You need a budget. You need to know how much you make and how much you spend.  How much you earn and what you choose to spend you money on is your choice.  You have your own tolerance for risk and your own taste and style, so lifestyle and what you own isn't something that we can answer. The key to your budget is to really understand where you money goes.  Maybe you are the sort of person who needs to know down to the penny, maybe you are a person who rounds off.  Either way you should have some idea. How should I make a budget? and How can I come up with a good personal (daily) budget? Once you know what you budget is, here are some pretty standard steps to get started.  Each point is a full question in of itself, but these are to give you a place to start thinking and learning. You might have other priorities like a charity or other organizations that go into your priority like. Regardless of your career path and salary, you will need a budget to understand where you money is, where it goes, and how you can reach your goals and which goals are reasonable to have. "If you are just barely scraping by on your current income, then you shouldn't be thinking about buying a car or house unless you can present (at least to yourself) clear evidence that doing so will actually lower your monthly expenses. Yes, there are times when even buying depreciating assets such as a car can lower your expenses, but you need to think hard about whether that is the case or if it is just something you want to get because you feel you ""should"". Remember the old adage that rich people buy themselves income streams (investments that either earn money or reduce expenses), while poor people buy expenses. If you are in the situation of barely scraping by on your current income, then the first step in my mind is to find out exactly what you are spending your money on (do this for a month or two, and then try to include non-regular or rarely-occuring bills such as subscriptions, insurance, perhaps utilities, and so on). Once you know where your money is going right now, outline that in a budget. At this point, you aren't judging your spending, but rather simply looking at the facts. Once you have a decent idea of where your money is going, only then try to think about what you can cut back on. Some things will be easier than others to change (it's much easier to cancel a premium TV channels package than to move to cheaper living quarters, for example, although in some cases simply picking the low-hanging fruit alone won't help you). Make a revised budget for the next month based on the new numbers, and try to live by it. Keep writing down what you actually spend your money on, then rinse and repeat. (Of course, you can make a budget for whatever period of time works for you; if you get paid every two weeks, budgeting per two weeks might be easier than budgeting per month.) The bottom line is that a budget is useless without a follow-up process to see how well your spending actually matches the budgeted amounts, so you need to spend some time following up on it and making adjustments. No budget will ever match reality exactly; think of the budget as a map, not a footstep-by-footstep guide for getting from A to B. When you find some wiggle room in your budget (for example, let's say you decide to cancel the premium TV channels package you got some time ago because it turns out you aren't watching much TV anyway), don't put that money into a ""discretionary spending"" category. There is an old rule in personal finance that says pay yourself first. If you are able to find $5/month of wiggle room, put it into savings of some kind. If you are unsure what kind of savings vehicle you should use, I'd suggest starting off with a simple savings account; it certainly won't earn you a great return (you'll be lucky if you can keep up with inflation), but it will get you into the habit of saving which at this point is a lot more important. And make that savings transfer as soon as the money hits your account. If you can, get the depositor to put a portion of your income directly into the savings account; if you cannot, make the transfer yourself immediately afterwards. And try to force yourself to live with the money that's left, not touching the savings account. Ideally, you should save a decent fraction of your income - I've seen figures everywhere from 10% to 25% of your after-tax income recommended by various people - and start out by budgeting that to savings and then working with whatever is left. In practice, saving anything and putting the money anywhere is much better than saving nothing. Just make sure that the savings are liquid (easy to convert to cash and withdraw without a penalty, should the need arise), set up a regular bank transfer for whatever amount you can find in that budget, and try to forget about it until you get the bank statement for the savings account and get that warm, fuzzy feeling for actually having a decent amount of money set aside should something ever happen making you need it. Then, later, you can decide whether to use the money to buy a car, start a company, take early retirement, or something entirely different. Having the money will give you the options, and you can decide what is more important to you yourself. Just keep on saving."
Establish good saving and spending habits. Build up your savings so that when you do buy a car, you can pay cash. Make spending decisions, especially for housing, transportation and entertainment, that allow you to save a substantial portion of your income. The goal is to get yourself to a place where you have enough net worth that the return on your assets is greater than the amount you can earn by working. (BTW, this is basically what I did. I put my two sons through top colleges on my dime and retired six years ago at the age of 56). "I disagree with the selected answer. There's no one rule of thumb and certainly not simple ones like ""20 cents of every dollar if you're 35"". You've made a good start by making a budget of your expected expenses. If you read the Mr. Money Mustache blogpost titled The Shockingly  Simple Math Behind Early Retirement, you will understand that it is usually a mistake to think of your expenses as a fixed percentage of your income. In most cases, it makes more sense to keep your expenses as low as possible, regardless of your actual income.  In the financial independence community, it is a common principle that one typically needs 25-30 times one's annual spending to have enough money to sustain oneself forever off the investment returns that those savings generate (this is based on the assumption of a 7% average annual return, 4% after inflation). So the real answer to your question is this: UPDATE Keats brought to my attention that this formula doesn't work that well when the savings rates are low (20% range). This is because it assumes that money you save earns no returns for the entire period that you are saving. This is obviously not true; investment returns should also count toward your 25-times annual spending goal. For that reason, it's probably better to refer to the blog post that I linked to in the answer above for precise calculations. That's where I got the ""37 years at 20% savings rate"" figure from. Depending on how large and small x and y are, you could have enough saved up to retire in 7 years (at a 75% savings rate), 17 years (at a 50% savings rate), or 37 years! (at the suggested 20% savings rate for 35-year olds). As you go through life, your expenses may increase (eg. starting a family, starting a new business, unexpected health event etc) or decrease (kid wins full scholarship to college). So could your income. However, in general, you should negotiate the highest salary possible (if you are salaried), use the 25x rule, and consider your life and career goals to decide how much you want to save. And stop thinking of expenses as a percentage of income." "Aggressiveness in a retirement portfolio is usually a function of your age and your risk tolerance. Your portfolio is usually a mix of the following asset classes: You can break down these asset classes further, but each one is a topic unto itself. If you are young, you want to invest in things that have a higher return, but are more volatile, because market fluctuations (like the current financial meltdown) will be long gone before you reach retirement age.  This means that at a younger age, you should be investing more in stocks and foreign/developing countries. If you are older, you need to be into more conservative investments (bonds, money market, etc).  If you were in your 50s-60s and still heavily invested in stock, something like the current financial crisis could have ruined your retirement plans.  (A lot of baby boomers learned this the hard way.) For most of your life, you will probably be somewhere in between these two.  Start aggressive, and gradually get more conservative as you get older.  You will probably need to re-check your asset allocation once every 5 years or so. As for how much of each investment class, there are no hard and fast rules.  The idea is to maximize return while accepting a certain amount of risk.  There are two big unknowns in there: (1) how much return do you expect from the various investments, and (2) how much risk are you willing to accept.  #1 is a big guess, and #2 is personal opinion. A general portfolio guideline is ""100 minus your age"".  This means if you are 20, you should have 80% of your retirement portfolio in stocks.  If you are 60, your retirement portfolio should be 40% stock.  Over the years, the ""100"" number has varied.  Some financial advisor types have suggested ""150"" or ""200"".  Unfortunately, that's why a lot of baby boomers can't retire now. Above all, re-balance your portfolio regularly.  At least once a year, perhaps quarterly if the market is going wild.  Make sure you are still in-line with your desired asset allocation.  If the stock market tanks and you are under-invested in stocks, buy more stock, selling off other funds if necessary.  (I've read interviews with fund managers who say failure to rebalance in a down stock market is one of the big mistakes people make when managing a retirement portfolio.) As for specific mutual fund suggestions, I'm not going to do that, because it depends on what your 401k or IRA has available as investment options.  I do suggest that your focus on selecting a ""passive"" index fund, not an actively managed fund with a high expense ratio. Personally, I like ""total market"" funds to give you the broadest allocation of small and big companies.  (This makes your question about large/small cap stocks moot.)  The next best choice would be an S&P 500 index fund. You should also be able to find a low-cost Bond Index Fund that will give you a healthy mix of different bond types. However, you need to look at expense ratios to make an informed decision.  A better-performing fund is pointless if you lose it all to fees! Also, watch out for overlap between your fund choices.  Investing in both a Total Market fund, and an S&P 500 fund undermines the idea of a diversified portfolio. An aggressive portfolio usually includes some Foreign/Developing Nation investments.  There aren't many index fund options here, so you may have to go with an actively-managed fund (with a much higher expense ratio).  However, this kind of investment can be worth it to take advantage of the economic growth in places like China. http://www.getrichslowly.org/blog/2009/04/27/how-to-create-your-own-target-date-mutual-fund/" "I posted a comment in another answer and it seems to be approved by others, so I have converted this into an answer. If you're talking about young adults who just graduated college and worked through it. I would recommend you tell them to keep the same budget as what they were living on before they got a full-time job. This way, as far as their spending habits go, nothing changes since they only have a $500 budget (random figure) and everything else goes into savings and investments. If as a student you made $500/month and you suddenly get $2000/month, that's a lot of money you get to blow on drinks. Now, if you put $500 in savings (until 6-12 month of living expenses), $500 in investments for the long run and $500 in vacation funds or ""big expenses"" funds (Ideally with a cap and dump the extra in investments). That's $18,000/yr you are saving. At this stage in your life, you have not gotten used to spending that extra $18,000/yr. Don't touch the side money except for the vacation fund when you want to treat yourself. Your friends will call you cheap, but that's not your problem. Take that head start and build that down payment on your dream house. The way I set it up, is (in this case) I have automatics every day after my paychecks come in for the set amounts. I never see it, but I need to make sure I have the money in there. Note: Numbers are there for the sake of simplicity. Adjust accordingly. PS: This is anecdotal evidence that has worked for me. Parents taught me this philosophy and it has worked wonders for me. This is the extent of my financial wisdom." "I would like to add my accolades in saving $3000, it is an accomplishment that the majority of US households are unable to achieve. source While it is something, in some ways it is hardly anything.  Working part time at a entry level job will earn you almost three times this amount per year, and with the same job you can earn about as much in two weeks as this investment is likely to earn, in the market in one year.   All this leads to one thing:  At your age you should be looking to increase your income.  No matter if it is college or a high paying trade, whatever you can do to increase your life time earning potential would be the best investment for this money.   I would advocate a more patient approach.  Stick the money in the bank until you complete your education enough for an ""adult job"".  Use it, if needed, for training to get that adult job.  Get a car, a place of your own, and a sufficient enough wardrobe.  Save an emergency fund.  Then invest with impunity. Imagine two versions of yourself.  One with basic education, a average to below average salary, that uses this money to invest in the stock market.  Eventually that money will be needed and it will probably be pulled out of the market at an in opportune time.  It might worth less than the original 3K! Now imagine a second version of yourself that has an above average salary due to some good education or training.  Perhaps that 3K was used to help provide that education.  However, this second version will probably earn 25,000 to 75,000 per year then the first version.  Which one do you want to be?  Which one do you think will be wealthier?   Better educated people not only earn more, they are out of work less.  You may want to look at this chart." "Money is a token that you can trade to other people for favors. Debt is a tool that allows you to ask for favors earlier than you might otherwise. What you have currently is: If the very worst were to happen, such as: You would owe $23,000 favors, and your ""salary"" wouldn't make a difference. What is a responsible amount to put toward a car? This is a tricky question to answer. Statistically speaking the very worst isn't worth your consideration. Only the ""very bad"", or ""kinda annoying"" circumstances are worth worrying about. The things that have a >5% chance of actually happening to you. Some of the ""very bad"" things that could happen (10k+ favors): Some of the ""kinda annoying"" things that could happen (~5k favors): So now that these issues are identified, we can settle on a time frame. This is very important. Your $30,000 in favors owed are not due in the next year. If your student loans have a typical 10-year payoff, then your risk management strategy only requires that you keep $3,000 in favors (approx) because that's how many are due in the next year. Except you have more than student loans for favors owed to others. You have rent. You eat food. You need to socialize. You need to meet your various needs. Each of these things will cost a certain number of favors in the next year. Add all of them up. Pretending that this data was correct (it obviously isn't) you'd owe $27,500 in favors if you made no money. Up until this point, I've been treating the data as though there's no income. So how does your income work with all of this? Simple, until you've saved 6-12 months of your expenses (not salary) in an FDIC or NCUSIF insured savings account, you have no free income. If you don't have savings to save yourself when bad things happen, you will start having more stress (what if something breaks? how will I survive till my next paycheck? etc.). Stress reduces your life expectancy. If you have no free income, and you need to buy a car, you need to buy the cheapest car that will meet your most basic needs. Consider carpooling. Consider walking or biking or public transit. You listed your salary at ""$95k"", but that isn't really $95k. It's more like $63k after taxes have been taken out. If you only needed to save ~$35k in favors, and the previous data was accurate (it isn't, do your own math): Per month you owe $2,875 in favors (34,500 / 12) Per month you gain $5,250 in favors (63,000 / 12) You have $7,000 in initial capital--I mean--favors You net $2,375 each month (5,250 - 2,875)   To get $34,500 in favors will take you 12 months ( ⌈(34,500 - 7,000) / 2,375⌉ ) After 12 months you will have $2,375 in free income each month. You no longer need to save all of it (Although you may still need to save some of it. Be sure recalculate your expenses regularly to reevaluate if you need additional savings). What you do with your free income is up to you. You've got a safety net in saved earnings to get you through rough times, so if you want to buy a $100,000 sports car, all you have to do is account for it in your savings and expenses in all further calculations as you pay it off. To come up with a reasonable number, decide on how much you want to spend per month on a car. $500 is a nice round number that's less than $2,375. How many years do you want to save for the car? OR How many years do you want to pay off a car loan? 4 is a nice even number. $500 * 12 * 4 = $24,000 Now reduce that number 10% for taxes and fees $24,000 * 0.9 = $21,600 If you're getting a loan, deduct the cost of interest (using 5% as a ballpark here) $21,600 * 0.95 = $20,520 So according to my napkin math you can afford a car that costs ~$20k if you're willing to save/owe $500/month, but only after you've saved enough to be financially secure." I wouldn't be too concerned, yet.  You're young.  Many young people are living longer in the family home.  See this Guardian article: Young adults delay leaving family home.  You're in good company.  Yet, there will come a time when you ought to get your own place, either for your own sanity or your parents' sanity.  You should be preparing for that and building up your savings. Since you've got an income, you should – if you're not already – put away some of that money regularly.  Every time you get paid, make a point of depositing a portion of your income into a savings or investment account.  Look up the popular strategy called Pay Yourself First. Since you still live at home, it's possible you're a little more loose with spending money than you should be – at least, I've found that to be the case with some friends who lived at home as young adults.  So, perhaps pretend you're on your own.  What would your rent be if you had to find a place of your own?  If, say, £600 instead of the £200 you're currently paying, then you should reduce your spending to the point where you can save at least £400 per month.  Follow a budget. With respect to your car, it's great you recognize your mistake.  We're human and we can learn from our mistakes.  Plan to make it your one and only car mistake.  I made one too. With respect to your credit card debt, it's not an insurmountable amount.  Focus on getting rid of that debt soon and then focus on staying out of debt.  The effective way to use credit cards is to never carry a balance – i.e. pay it off in full each month.  If you can't do that, you're likely overspending. Also, look at what pensions your employer might offer. If they offer matching contributions, contribute at least as much to maximize the tax free extra pay this equates to. If you have access to a defined benefit plan, join it as soon as you are eligible. Last, I think it's important to recognize that at age 23 you're just starting out.  Much of your career income earning potential is ahead of you.  Strive to be the best at what you do, get promotions, and increase your income.  Meanwhile, continue to save a good portion of what you earn.  With discipline, you'll get where you want to be. "Money management is data-driven.  You've been operating on ""how you feel"" and ""what should be"", and that's why it hasn't been working.  First you collect data on how you actually are spending money.  Record every expenditure and categorize what it was used for.  Go back 6-12 months if you can.   You don't need blistering detail, in fact I adjusted my lifestyle to make that easy.  Fast food meals, movie tickets, USB cables, anything too small to bother recording, I just pay cash for that. Everything else:  check, ACH or credit card. It is not excessive to do it in Quickbooks or similar if you know the app.  Whatever is most efficient for you.  Now you have a log of what you've been spending on what in a time oeriod, and a log of your income. Congratulations, you have a ""Profit & Loss Statement"", a basic financial planning tool.   Now you can look at it accurately, decide if the money you are spending in each department brings the value and joy that fits the expenditure,  and change what you want. You may decide you'd rather save $1000/mo than run a $200/mo deficit.  Changing is simply coming up with different numbers that you think are achievable.  Congratulations, you have a budget or spending plan.   Again, data driven.  The point is, your spending plan is based on your actual experience with past expenditures, not blind-guessing. Then, go out and make it happen." A person who always saves and appropriately invests 20% of their income can expect to have a secure retirement. If you start early enough, you don't need anything close to 20%. Now, there are many good reasons to save for things other than just retirement, of course. You say that you can save 80% of your income, and you expect most people could save at least 50% without problems. That's just unrealistic for most people. Taxes, rent (or mortgage payments), utilities, food, and other such mandatory expenses take far more than 50% of your income. Most people simply don't have the ability to save (or invest) 50% of their income. Or even 25% of their income. "but there's that risk of me simply logging on to my online banking and transferring extra cash over if I cave in. Yep, there's no reasonable substitute for self-control. You could pay someone else to manage your money and dole out an allowance for your discretionary spending, but that's not reasonable for most people. Your money will be accessible to you, you don't need it inaccessible, you need to change the way you think about your available money. Many people struggle with turning a corner when it comes to saving, a tool that helps many is a proper budget. Plan ahead how all of your money will be used, including entertainment. If you want to spend £200/month on entertainment, then plan for it in a budget, and track your spending to help keep within that budget. It's a discipline thing, but a budget makes it easier to be disciplined, having a defined plan makes it easier to say ""I can't"" rather than ""I shouldn't, but... okay!"" There are many budgeting tools, just pick one that has you planning how all your money is spent, you want to be proactive and plan for saving, not hoping you have some leftover at the end of the month.  Here's a good article on How and Why to Use a Zero-Sum Budget. Some people have envelopes of cash for various budget items, and that can be helpful if you struggle to stick to your budget, once the entertainment envelope is empty, you can't spend on entertainment until next month, but it won't stop you from blowing the budget by just getting more cash, as you mentioned." "I'm still recommending that you go to a professional. However, I'm going to talk about what you should probably expect the professional to be telling you. These are generalities. It sounds like you're going to keep working for a while. (If nothing else, it'll stave off boredom.) If that's the case, and you don't touch that $1.4 million otherwise, you're pretty much set for retirement and never need to save another penny, and you can afford to treat your girl to a nice dinner on the rest of your income.  If you're going to buy expensive things, though - like California real estate and boats and fancy cars and college educations and small businesses - you can dip into that money but things will get trickier. If not, then it's a question of ""how do I structure my savings?"". A typical structure: Anywho. If you can research general principles in advance, you'll be better prepared." If you spent your whole life earning the same portfolio that amounts $20,000, the variance and volatility of watching your life savings drop to $10,000 overnight has a greater consequence than for someone who is young. This is why riskier portfolios aren't advised for older people closer to or within retirement age, the obvious complementary group being younger people who could lose more with lesser permanent consequence. Your high risk investment choices have nothing to do with your ability to manage other people's money, unless you fail to make a noteworthy investment return, then your high risk approach will be the death knell to your fund managing aspirations. Your attitude is great, but be careful to temper your (awesome) ambition with a dose of reality.  Saving is investing is great, the earlier the better, and seeing retirement at a young age with smooth lots of life's troubles; saving is smart and we all know it. But as a college junior, be honest with yourself.  Don't you want to screw around and play with some of that money?  Your first time with real income, don't you want to blow it on a big TV, vacation, or computer? Budget out those items with realistic costs.  See the pros and cons of spending that money keeping in mind the opportunity cost.  For example, when I was in college, getting a new laptop for $2000 (!) was easily more important to me than retirement.  I don't regret that.  I do regret buying my new truck too soon and borrowing money to do it.  These are judgment calls. Here is the classic recipe: Adjust the numbers or businesses to your personal preferences.  I threw out suggestions so you can research them and get an idea of what to compare. And most importantly of all.  DO NOT GET INTO CREDIT CARD DEBT.  Use credit if you wish, but do not carry a balance. First, as Dheer mentioned above, there is no right answer as investment avenues for a person is dicteted by many subjective considerations. Given that below a few of my thoughts (strictly thoughts): 1) Have a plan for how much money you would need in next 5-7 years, one hint is, do you plan you buy a house, car, get married ... Try to project this requirement 2) Related to the above, if you have some idea on point 1, then it would be possible for you to determine how much you need to save now to achieve the above (possibly with a loan thrown in). It will also give you some indication as to where and how much of your current cash holding that you should invest now 3) From an investment perspective there are many instruments, some more risky some less. The exact mix of instruments that you should consider is based on many things, one among them is your risk apetite and fund requirement projections 4) Usually (not as a rule of thumb) the % of savings corresponding to your age should go into low risk investments and 100-the % into higher risk investment 5) You could talk to some professional invetment planners, all banks offer the service Hope this helps, I reiterate as Dheer did, there is truely no right answer for your question all the answers would be rather contextual. "You ask a few different, though not unrelated, questions. Everywhere you turn today, you hear   people talk about how much they need   to save or how important it is to find   a good deal on things ""in this   economy"". They use phrases like ""now   more than ever"" and ""in these   uncertain times"". It seems to be a lot   of doom and gloom. Some of this is marketing spiel.  You may notice that when the economy goes south the number of ads for the cheaper alternatives goes north.  (e.g. hair clippers, discount grocery stores, discount just about anything)  Truth is, we should always be looking for ways to save money on goods and services we purchase.  The question is, what is acceptable to you for your desired lifestyle.  (And, is that desired lifestyle reasonable for your income, age and personal situation.)  Generally speaking, the harder times are the more we find discounted/cheaper alternatives acceptable.   Is there really a good reason that   people should be saving more than   spending right now? How much you are putting away is a personal matter.  I can still remember my dad griping whenever he couldn't save half of his paycheck.  That said, putting away half your paycheck may lead to a rather austere lifestyle.  This, of course, depends on the size of your paycheck and your desired lifestyle.  You could be raking it, living simply and potentially put away more than half your income with relative ease. If you have a stable job, and a decent cash reserve, is it anymore ""dangerous"" to make a large purchase now than it was seven years ago? Who knows?  Honestly, no one.  Predicting the future is a fool's errand.  (If you are interested in reading more on this view point, I suggest The Black Swan.) You mention the correct approach in this question.  Ensure that you have liquid assets (cash or cash equivalents, i.e. money that you can draw on immediately and isn't credit) which covers at least 3-6 months of your necessary expenses (rent/mortgage, bills, car payments, food).  (There is no reason that you couldn't try to increase this to 1 year, especially ""in this economy."") You should also strive to have money available for emergencies that don't necessarily include loss of income.  Of course, make sure you're putting away for retirement, as appropriate for your retirement goals.  After that should come discretionary items, including investing, entertainment, the large purchase you mentioned, etc.   You should never use money that you may need immediately (5-10 years) for investing.  This doesn't necessarily include the large purchase you are contemplating.  For example, if you are considering purchasing a home, the down-payment may be one of the items for which you need money in the ""immediate"" future. Is it really only because of unemployment numbers? This is probably the big one that is the focus of everyone's attention.  That said, the human attention span is limited.  We have a natural need to simplify things.  This is one of the reasons that we tend to focus on a few, hopefully important, things.  However, the unemployment numbers are not that the only thing of concern.  Credit is still pretty hard to come by these days.  The overall economy is still hurting, even if we are technically no longer in a recession.  There are also concerns about U.S. government borrowing, consumer spending, recent trucking numbers, etc.  (It may not be obvious, but trucking is used as a barometer of economic activity.  If there aren't as many trucks carting goods across the country, it probably means that there is less economic activity.)  The headline number these days is unemployment, as most census workers have now been returned to the pool. To answer the overall question, we should always be saving money, in good times or in bad.  Be that by squeezing more value out of our purchases or by putting some money away.  We should always try to reduce our risks, by having an emergency ""cash"" cushion.  We should always be saving for retirement.  Truth be told, it is probably more important to put money away in good times, before the hardships hit."