Your 20s are one of the most thrilling periods of your life. You have the energy and vigor to explore the world and live life as you see fit. With so much to do and so little time to have all the fun in the world, there’s almost no opportunity to save money in your 20s, or so it seems.
Your 20s are actually one of the most important periods in your life where saving money should be paramount. Building up your resources as you save money and creating an emergency fund are the kind of priorities you need to have in your 20s.
Before you start thinking how impossible this necessary priority sounds, you should know there are quite a few ways to start saving money in your 20s. So, we did the research for you! This guide will answer many of your questions about how to save money in your 20s, including building your credit score and improving your spending habits.
Let’s help you make saving a priority in your twenties!
Why Should I Save Money in My 20s?
Why on earth should you be saving money in your twenties? Someone has got to spend money, right? Why should it be you? Why should it be in your 20s?
Your 20s are one of the most uncomplicated times of your life, with little to no responsibilities and living expenses. Before you think it’s finally time to start blowing all you earn on fancy clothes, high-end gadgets, and the best restaurants, think about the future.
Spending less in your 20s to amass wealth for later years in life or infusing savings into your retirement accounts is a wise thing to do. As you grow older and start to take on more responsibilities and expenses like rent payment or car payment, you begin to worry about going into massive debt. Your need for money continues to go up, and spending increases. With some savings stored up, you can give yourself a headstart and even free up money to handle any more emergencies that pop up.
As long as you earn money one way or the other, your 20s is the prime time to begin to keep money aside through a savings or investment account. Imbibing this habit of saving money in your 20s helps make it easier for you to build an emergency fund in the future and meet your savings goals without much hassle.
How Can I Be Financially Free in My 20s?
Financial freedom is achievable based on what you do with your money or your spending habits. The matter of appropriately managing your personal finance is a major life decision. One of the best steps you can take is to follow these golden rules for financial freedom in your twenties.
Build Your Emergency Fund
An emergency fund is the savings you set aside, preferably in savings accounts or any bank accounts that you can only use for emergencies. This money is different from other types of savings you may have stored up. It should only come up for use when there is a real-life emergency.
From experience, you will learn that setting aside this fund in your budget and saving it up before you start spending your income is the best choice. Emergency funds are lifesavers in dire situations such as unemployment, medical expenses, or sudden travels.
Your emergency fund checking account should have up to 3 months’ worth of money at your disposal. To know how much precisely to budget for this purpose, an emergency fund calculator can help you.
Take Charge of Your Budget
It’s one thing to create a budget; the best practice, however, is to take charge of your budget. How well do you follow through with your budget? When you create a budget, you ensure that your spending for the month or period you have budgeted is in line.
Creating budget goals and being unable to meet them is writing yourself a check for a life of paying debts and dealing with poor credit scores. Examine your budget and try to see what you can cut back on without affecting your quality of life. One good place to check is under your Entertainment category.
Sure, you love to go out with friends or partners and experience life because you’re still young. However, you will find what difference cutting off weekly movie dates can make in ensuring you meet your budget.
If you’re doing activities with friends and sharing the expenses, be sure that the cost for your entertainment is reasonably priced. You can also extend this mindset to other areas of your budget.
If creating a budget sounds stressful, don’t worry. There are tons of budgeting apps out there that can help you manage the process and your finances including PocketGuard, YNAB, Banktivity, and Personal Capital – to name a few.
Make Debt Payments Priority
Next on your agenda after building a formidable emergency fund should be setting money aside in your retirement account. When these two are in place, next and very important on the list should be clearing off your debts.
Financial managers advise that to keep healthy personal financial health; you should pay off debts with an interest rate as high as 7%. With this, you actually save more money on interests than you think you’re trying to avoid losing when you don’t pay.
It helps to save money for the future; once your debt is cleared, you can also channel more resources to your savings account to help you meet your savings goals.
Best Money-Saving Tips for Your 20s
Now that you understand the bedrock of breaking free financially in your twenties, the next point in this article is to share our 9 best money-saving tips. Sticking to these tips is guaranteed to help you save money and meet every financial goal you may have.
1. Avoid student loans with high-interest rates
One of the biggest challenges that many students face in their twenties is paying for their education. Due to lack of finances, they resort to taking many student loans to cover their education. Many of these loans carry high-interest rates that take students years to pay back.
By putting off payment and allowing it to accumulate, students dig themselves deeper into debt, rack up bad credit scores, and a poor payment history that may ruin their chances of taking another loan. While student loans may seem like a great option, you’re better off finding alternative means of funding.
If you must take them, go for those with low-interest rates. If you already owe a student loan debt, ensure you pay off the loans with the highest rates first.
2. Build a good credit history
Your credit history is a financial record that shows your ability to repay debts that you have racked up on your credit card or when you take a loan. If you keep falling behind on loan repayments or paying back on your credit card, you build a bad credit score.
It may not seem important at first, but a poor credit history affects your ability to do certain things like find a house or pay for services with a down payment. Sometimes a poor credit score may even count against you when you are job searching.
A poor credit score can also affect your finances because it portrays you as a high-risk borrower, and so money lenders may charge you a high-interest rate.
3. Cut back on using your credit cards
Using a credit card has become a part of everyday life, such that it’s what you reach for whenever you wish to pay for anything. Credit card use encourages spending money you don’t have on items you may not truly need. This may lead to debt accumulation.
While using your credit card often helps you build a good credit card, sometimes it is advisable to go on a credit card fast. In place of a credit card, you can carry and use cash or use a debit card instead. This will ensure you only spend money you have.
4. Share expenses with someone else
One of the ways to cut back on spending is to split the expenses with another person. Sure, footing the entire bill may be chivalrous, some of the time. What’s not acceptable is to continue to do it when your income and earnings cannot effortlessly cover it.
You can also share subscription expenses with partners, friends, and families to reduce the hit your finances will suffer if you pay the entire bill. You can split payment for Netflix, Spotify, and other related subscriptions between 2 or more people.
5. Have a debt repayment plan
This is one way to ensure you meet your payment goals in no time. Whether it is a car payment or house payment, create a workable plan around your income and budget that will equip you to pay off this debt in a short while.
Some savings apps like Mvelopes have a debt repayment plan to help users clear off debts quickly.
6. Seek counsel from financial experts
The twenties are one of the periods many people make mistakes; however, some costly mistakes can be avoidable. If you’re making any big money moves, don’t go in headfirst without any information about the terms of the financial offer.
Seek financial counsel from the experts before you take a step. This will save you from making costly mistakes that could cost you a big chunk of your finances both now and in the future.
7. Stay up to date with relevant financial information
The world of finances is ever-evolving, with new information, rules, and policies coming up regularly. It is essential to stay up to date with relevant information that you may need to improve your finances or keep you from falling into financial troubles.
One of the challenges of young folk is that they do no keep abreast with important info like this. Save your finances the trouble and stay updated with financial information from top-rated websites or financial bodies.
8. Save a percentage of your income
It goes without saying that you need to save. Setting aside a percentage of your income in a savings account every two weeks or every month ensures that you have funds for a rainy day. You can automate your savings using saving apps so that it becomes consistent and regular.
It is also a great idea to improve your source of income, if possible. An income upgrade significantly opens you up for financial rewards.
9. Engage in a profitable side hustle
Another way to improve your income so that you can save more is to engage in a side hustle that pays. There are many legit jobs you can take on on the side to augment what you already earn. You can work as a content writer, use a part of your house for Airbnb hosting, manage social media for companies, and lots more.
With a good side hustle, you can earn enough to set aside monthly and still live comfortably.
How Much Money Should I Save in My 20s?
To conclude, here’s a good place to begin:
Saving 20% of your monthly income is ideal in your twenties. Use the 50/30/20 rule to help you budget appropriately. 50% of your income goes to your needs, 30% should go to your wants, while at least 20% should be kept for your savings.
It’s never too late to imbibe the savings culture; your twenties is an excellent place to start.