Why Is It Important to Save Money?
If you are young and in your 20s, the words “retirement,” “budgeting,” and “long-term savings” are likely not in your everyday vocabulary. However, they should be.
While saving money and investing in your future is incredibly important, one could argue that this is even more important at a young age. Saving money in your 20s puts the advantage of time on your side and opens up a variety of options.
Now more than ever, it is important for younger generations to start saving. According to a recent study conducted by the Center for Retirement Research at Boston College, 28 to 38-year-olds have built up and saved far less than previous generations, largely due to rising student loan debt.
While there are many benefits to saving, some of the most important include:
- Meeting Long-Term Financial Goals
- Opportunity and Freedom
- Financial Security
Saving can help one to achieve both short and long-term goals such as purchasing a house or property, funding your education or traveling. Many of these types of goals require a significant expense that most people cannot afford to pay just on their monthly paycheck alone.
Furthermore, the opportunity and freedom that come with saving is incredibly important. There is data that supports the idea that financial independence makes us happier. The ability to cultivate your own living space and pay for your own goods and services is incredibly empowering.
Finally, the financial security and reduced stress that comes with saving is invaluable. In fact, individuals with an emergency savings account reported significantly lower stress levels than those without a savings account.
Overall, saving money is an important financial habit that can help you navigate the choppy waters of unexpected life challenges but also empower you to achieve your goals.
Is It Normal to Struggle Financially in Your 20s?
If you are currently in your 20s and struggling to put aside money to save, rest assured that this is normal. In fact, it is incredibly normal to struggle financially in your 20s. 88% of young adults reported that they struggle with financial planning in at least one way.
While good financial habits and budgeting are key, there are several contributing factors that lead to young adults facing financial struggles. Some of these reasons include:
- Entry Level Jobs: Many higher paying jobs require years of experience. Even with a college degree or special skill set, many employees need to work their way up or complete apprenticeships before making the big bucks.
- Student Loans: Millennial and Gen X borrowers have the highest student loan debt. This coupled with any credit card debt can make it extremely difficult for individuals in their 20s to make ends meet, much less start saving.
- Living Independently: Individuals in their 20s are often living independently for the first time in their lives. While this is a rite of passage, it is also expensive. Even if you are living with roommates, many individuals in their 20s need to purchase furniture, appliances, and other necessary items to live on their own.
Furthermore, things like unexpected life expenses, sudden car repairs or emergency medical bills can happen at any age. However, when these expenses occur in your 20s it can feel even more compounded due to your lifestage. Having enough savings for these types of things can be difficult. Many end up using credit cards, personal loans or equity loans from LoanMart to cover these sudden costs.
While financial struggles in your 20s are common, developing good financial habits is the most actionable step that young people can take to combat the financial hardships that go hand in hand with young age. Rest assured, as time progresses and you advance in your career and stage of life, your financial situation will continue to improve!
How Much Money Should I Save in My 20s?
If you are wondering just how much money you should save in your 20s, this number varies on several different factors. Your current personal circumstances, financial goals, amount of debt and current financial situation can all affect your savings plan.
A good rule of thumb is to begin budgeting as soon as possible. Track your incoming and outgoing expenses for a few months until you have a solid number for each. You want to ensure that the money you have going out does not exceed the money you have coming in, and that you are living within your financial means.
Once you have completed your budget, you may want to consider a full financial goals assessment. With this, you will take into account your personal financial goals and how you can adjust your budget to make your dreams a reality. While saving for big expenses is well within reach with careful planning, it does take time and consideration.
In terms of other savings, many experts agree that individuals should have at least 3-6 months’ worth of expenses in an emergency fund. This fund can come into play if you have an unexpected job loss, expensive home or car repair, or medical bill.
Through careful reflection, you can determine the specific amount that you should save at each stage in your life. With time on your side, you already have a huge advantage to set a solid foundation for your financial future.
Ways to Start Saving in Your 20s
If you are seeking out additional actionable ways to save in your 20s, explore the below tips and tricks:
- Resources for Creating a Budget: Consider utilizing some online budgeting tools such as PocketGuard or Empower Personal Dashboard. You may also want to consider seeking out the help of a financial planner. In addition, many local community colleges and park districts offer finance or budgeting classes that can be a great way to learn the ropes!
- Automate Savings: You can’t miss money that you never had. Consider automating your savings. Many employers can direct a predetermined amount of your paycheck to a different account. This can help you save gradually without even thinking about it!
- Eliminate Unnecessary Expenses: Comb through your bank statements each month and ensure that the money you are spending is warranted. Eliminate any subscriptions that you no longer use, or consider sharing with a friend or family member to help share the expense.
- Increase Your Income: Gen Z is the generation with the most side hustles. Reflect on your skills and expertise and consider picking up an extra side job. Extra income can help you pay down debt so that you can more appropriately allocate your expenses or help you reach your savings goals faster!
Lastly, take advantage of your age! If you are still in college or taking classes, explore student discounts. Use a student discount finder to find restaurants, museums, travel companies, and other businesses that cater to students.
Remember, time is on your side! By investing wisely with your savings, you can capitalize on interest and growth. Through implementing these strategies and continuing to educate yourself, you can build a strong financial foundation that will serve to benefit you and your family for years to come!
