This content is part of our series focusing on savings at different stages of life. For more, check out our advice on saving money in your 30s, 40s, 50s, and 60s!
Maybe you’re still a college goer or fresh graduate looking for financial tips. Building good financial habits from an early age is vital. Thinking about your future, regardless of how young you are, is essential.
Challenges you might confront while planning your savings in your 20s include dealing with student loans, managing your budget, and starting an emergency savings account. Making sound financial choices now will make your future decisions much smoother!
UNDERSTANDING YOUR BUDGET
For many 20-somethings, budgeting might seem foreign. They may be used to parental support, or are just starting to handle their own finances. However, your twenties is an ideal time to gain control over your money.
In principle, budgeting is straightforward. First, determine your income – the money you earn, either from your job or any side hustle if you’re a student.
Next, calculate your expenses. Things like utility bills, debt repayments, groceries, rent, insurance and more qualify as expenses. Although some expenses like student loans payment or credit card bills are inevitable, you can manage your utility usage or food expenses more effectively to save money.
If you need help tracking your spending, Mint.com is an excellent tool. All you need to do is link your bank account and Mint will categorize your budget, help set financial goals, and more!
STARTING TO SAVE
Once you have a budget, you know how much you can save every month. It’s crucial to have an emergency fund and save for your life goals simultaneously, like a new car or a house’s down payment.
If you’re struggling to save money, consider setting up automatic payments to your savings account. You’ll save regularly without even thinking about it and can easily adjust the amount when required.
How much should be in your emergency fund? Although many finance experts recommend saving 3 to 6 months’ worth of income, when you’re young, you might not need that much. Instead, try saving 1-2 months of income whilst prioritizing other important expenses like paying off debt.
TACKLING STUDENT LOANS
If you’re in your 20s, it’s likely that you have some student loan debt. Recent statistics from The Institute for College Access and Success (TICAS) suggest that the average debt level for all graduating seniors with student loans has risen to $29,400.
At this stage in life, it’s crucial to start paying off your debt sooner rather than later. Even paying small amounts while you’re in college can lead to significant savings when your loans are due.
Student loans can be pursued privately or federally, each with its own rules and conditions. Being informed about these before signing your promissory notes is key.
LIVING WITHIN YOUR MEANS
Living within your income, particularly when you start a new job or are in college, can sometimes be a challenge. You might be tempted to splurge on a new car, expensive rent, or new clothes to celebrate. Remember, making sensible financial choices now will pay off in the future.
Here are a few tips to live within your means:
Live Modestly – Opt for budget-friendly accommodations. Living with a roommate is a cost-effective choice, and it also allows you to socialize with others.
Avoid Credit Card Dependency – It might be tempting to use a credit card, but doing so recklessly can trigger financial troubles. If using a credit card is necessary, make sure to pay the full balance each month. The best way to avoid consumer debt is to prevent it.
Learn to Cook – Is your food budget excessive? Try cooking at home. Not only can it be an enjoyable activity, but home-cooked meals also tend to be cheaper and healthier.
Choose Affordable Entertainment Options – It’s easy to give into pressure and spend excessively on entertainment. Seek out free events or affordable activities that you can enjoy with friends or family.
By adopting robust financial habits, reducing debt, building an emergency fund, and living within your means, you’ll set yourself up for a secure financial future.
Remember, your current financial decisions will shape your future. Be smart and give your future self the gift of financial stability.
