When you’re a young adult and just beginning to establish your path in life, saving money is probably not on the front burner. You have life goals, but you haven’t connected them to a financial plan. Thinking about how to save money in your 20’s might seem like daydreaming. But this is the best time to lay down a healthy financial foundation.
Building Healthy Financial Habits
Developing healthy financial habits during your 20’s is key to your future financial freedom. The steps you take during this decade will help you accomplish important financial goals in your 30’s.
The reality of student loan debt and possibly also credit card debt certainly creates challenges to visualizing and goal setting. Finding ways to save money in your 20’s requires strong financial discipline.
Discipline and Consistency
Possibly you’re setting yourself up in the world for the first time—a rental home, furnishings, car, fun. Your spending discipline plan helps you be careful to live within your means. You don’t add to your debt.
And even though your finances may be challenging, you should not delay saving until “later.” Later will come sooner than you think. You need to save money for retirement, emergencies, life events (wedding, children, relocation) and significant purchases as soon as possible.
The Important Thing is to Start
While there are saving goals to strive for when you are in your 20s, the most important thing is simply to begin. Save as much as you can and start saving now. The financial habits that you acquire in your 20s will set the foundation for the rest of your financial life.
Savings Goals for Your 20’s
When you’re in your 20’s you’re probably not thinking much about emergencies. But the unexpected happens. Experts recommend an emergency fund equal to, at a minimum, three months of your living expenses. Six months is better. But don’t be overwhelmed by this goal. Start small. Set a goal of saving $1,000 and gradually build your emergency savings until you have enough for one month. Keep going until you get to the three months or the six-month goal.
Saving for retirement is probably not in your reality when in your 20s, but the earlier you start saving the sooner you can retire. Remember, there is no minimum age for retirement! If you are employed, be sure to match your employer’s contribution to your retirement fund. And try to max out your IRA. Each time you get a raise or bonus put that money first toward your retirement savings.
Live Within Your Means
One of the easiest ways to save money in your 20’s is to live within your means. Create a budget and stick to it. If you don’t spend more than you earn, you will have money to put toward your savings goals.
Lean to be a Smart Spender
Look for bargains, shop around, take advantage of coupons and online shopping apps. There are so many ways to reduce your daily living expenses, leaving you with more money to put toward your savings goals. Assess your lifestyle—are there ways to reduce your monthly expenses? Are those trips to the café robbing you of money that be funding your savings accounts? An investment in a good coffee maker or espresso machine would be better.
Automate Your Savings
If saving money is not easy for you, automate. If you don’t see the money you won’t be tempted to spend it. Hopefully, you have already set up automatic payments for your bills, so why not add savings to the matrix? Lots of apps can help you meet your savings goals.
Get Rid of Debt
You may still be paying off your student loans, but now is the time to get serious about getting rid of all your bad debt, such as credit card debt. Commit to using your credit card only for what you can afford to repay each month. Keep your balances low and focus on building a good credit score.
Put Your Money to Work for You
Figuring out how to save money in your 20’s may be daunting enough, but invest? Yes. Putting your money to work for you is another way to accelerate your journey to financial freedom. Be careful of peer advice. Meet with a qualified financial planner or investment advisor.
Bottom line. Pay yourself first. Get rid of debt. Spend smart.