Building a Strong Foundation
To take control of your finances, you must know where your money goes. Regularly reviewing your bank account and credit card statements allows you to track your spending habits, adjust your budget, and identify unnecessary expenses (like unused subscriptions) or overspending patterns. This will help you cut back on spending, giving you extra funds to put toward your savings.
Creating a budget is crucial for tracking your income and expenses. This will not only help prevent overspending, but budgeting also allows you to adjust your spending to prioritize savings. For instance, putting $25 a week into a savings account — roughly the cost of one takeout meal — amounts to $1,300 per year. And with compound interest, as money accumulates in your account, your earnings increase, creating a snowball effect that boosts your savings over time.
Using a budgeting app can help you review your monthly spending to determine what are essential and nonessential expenses and plan your budget accordingly. Some apps that Azhar recommends are Affirm, PocketGuard, and Goodbudget.
Saving Strategies for Your 20s
Building your savings may feel impossible, especially when rising costs make your budget tighter, but there are simple steps you can take to make saving money effortless. Azhar says, “Start with putting aside any amount that you are comfortable with. The goal is to contribute something towards your savings every pay period. Personally, I contribute at least 10% of my paycheck to my savings or investment accounts. The goal is that the contribution percentage can go up but can never fall below 10%.” Begin by setting up automatic transfers to your savings account so that a small portion is automatically set aside when you receive your paycheck. Remember, small amounts saved consistently add up.
Create a plan to pay off high-interest debt like credit card balances to reduce the overall amount you’ll have to pay in interest. Not only does this save you money, but it improves your credit score, too.
Lifestyle Hacks for Savings
While your 20s are about experiencing life, it's crucial not to overspend on the fun stuff. Finding free or low-cost activities is a great way to save money while still doing what you love. Just remember to build fun money into your budget.
Another pitfall to be aware of is lifestyle inflation. As young people enter their professional careers, they are making more money than ever before, and this increase in income can lead to unnecessary spending. Familiarize yourself with your monthly income and expenses to ensure you live within your means.
Think of the Future You
It’s easy to lose sight of future needs, but financial planning for your future is critical. An emergency fund for unexpected costs — such as medical emergencies, car repairs, or job loss — is essential.
It’s never too early to start planning for retirement, and putting money toward it now can make a dramatic difference, thanks to compound interest. Azhar says, “If your employer offers an employer-sponsored, defined-contribution, personal pension account (401(k) or 403(B) plan) with a company contribution match, that is another great way to save and grow funds. There are several ways to save and invest. It’s important to choose a strategy that works for you.” Contributing to retirement accounts like a 401(k) or an IRA gives your savings more time to grow.
A Decade of Growth
Your 20s are an exciting time to learn more about yourself and build your future. Building smart financial habits now will benefit you immensely in the long run. By embracing these money-saving strategies, you can enjoy the freedom and security that come with financial responsibility in every decade to come.
