How to save money in your 20s

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There’s a big difference between being 29 and 22.

But what most 20-somethings can agree on is that they’re going through a period of transition. Whether you’re preparing to leave college and enter the real world, you’re buying your first home or you’re getting ready to tie the knot, the most constant thing in your life is probably change.

With so many aspects of your life in flux, saving money and achieving any form of financial stability may seem impossible. But when you have clear goals in mind, an app or digital tool at your disposal and some self-discipline, you can successfully set aside money for the future.

Here’s what to do if you need help saving money in your 20s.

Create a budget

A building can’t be built without a blueprint. In the same way, you can’t expect to manage your finances well or achieve any sort of goal without a plan. By creating a budget, you’ll have a clear sense of how much money is coming in and how much is going out (and what you’re spending it on).

The key to creating a budget you can stick with is making sure it’s realistic. It needs to account for all of your regular expenses. It also needs to show how much money you’re saving.

To be an effective saver, putting away money should be something you plan to do in advance — something you make room for within your budget. You won’t get far in terms of saving money if you don’t plan ahead or you just save whatever you didn’t spend at the end of the month.

“It can’t be, ‘Here’s the budget and whatever’s left is savings,’” says John Crumrine, the founder and managing principal of Brunswick Financial, a firm based in Shallotte, North Carolina. “Savings has to be ideally just below rent payment and car payment as the next line item in the budget.”

Your budget should take your most important savings goals into consideration, too. That way, you’re prepared to take your next summer vacation or shell out money, if needed, for emergencies.

Pay student loans to avoid interest

Many 20-somethings are burdened by student debt. So naturally, saving money isn’t something that can be done effectively without addressing this hurdle. Even if a large portion of the money you would’ve saved is going to your student loan servicer, saving even a little bit of your earnings is better than not saving anything at all.

Knocking out student debt will increase the amount of money you can deposit into your savings account. And the sooner you pay off your loans, the less money you’ll spend in the form of interest.

If you’re overwhelmed by the size of your monthly loan payments, speak up. Consumer saving expert Andrea Woroch recommends calling your student loan provider and asking whether you qualify for financial hardship deferment or a different repayment plan.

“Don’t simply ignore the debt — this can be devastating to credit scores and cause future issues when trying to obtain a personal loan for business or mortgage,” Woroch says.

If you have multiple loans and you’re having trouble deciding which one to pay off first, consider the avalanche debt-repayment method, says Misty Lynch, a behavioral financial adviser and certified financial planner at Twine. Paying off high-interest debt first will save you the most money, she says.

Automate your savings

If saving money is something you’re struggling to get into the habit of doing, automating your savings is a good step to take. As a student or someone trying to climb the ladder at work, you likely have a long list of tasks to accomplish. Especially if you’re someone who already pays bills automatically, you might as well turn saving money into something you don’t have to consciously think about.

There are many ways to automate your savings. An easy change to make is having a portion of your paycheck redirected into a high-yield savings account. Preventing yourself from even touching the money you’re planning to save can make a big difference, Crumrine says.

Taking advantage of apps that automatically sweep your money into savings can help, too. Twine, for example, can help you prioritize your goals and give a sense of how much you’ll have to save to get there, Lynch says.

“Technology has made automating your savings easier than ever,” Lynch adds. “A saving and investing app like Twine, for example, not only helps you define your financial goals, but it helps you to stay on track to meet those goals in a realistic time frame.”

Find a new source of income

Having some money go into savings every time you make a purchase sounds wonderful. But if you have a large goal in mind — like saving up for a new vehicle — socking away $2 at a time isn’t going to cut it. In some cases, you’ll need to make a bigger financial sacrifice and cut costs.

Another option is to find another stream of income, like a side hustle. Get creative. There’s an endless number of odd jobs you can take on, and you may get the opportunity to use your side gig to build skills or take your career in a different direction.

“If you don’t want to commit to a part-time retail gig and give up nights and weekends, you can find side hustles that are more flexible, like dog sitting,” Woroch says. “Sites like say you can make up to $1,000 a month just by welcoming other people’s pets into your home. Otherwise, think about becoming a rideshare driver on days or nights you don’t have anything going on to boost your savings to pay down debt faster.”

Save up for the down payment on a new home

Buying a home is a big undertaking, and it’s not a decision that should be taken lightly.

If you’re ready to settle into the house of your dreams, make sure you’re financially prepared. Once you’ve decided you’d rather buy than rent, start saving up for your home’s down payment.

Living with roommates can be a good way to start saving for a home. It’s what many 20-somethings are already doing in major cities like New York and Washington. Find out if you can qualify for a loan that requires a lower down payment, like a mortgage backed by the Federal Housing Administration.

Pay down debt and work on boosting your credit score so you can qualify for the best mortgage rates. And do the math so that you’re prepared to pay for the other costs associated with owning a home, Woroch says, like maintenance-related expenses.

Start investing

If you’re at that point where you’re ready to start investing, experts suggest starting simple. Determine your risk profile and figure out what your investment options are based on the amount of risk you’re comfortable taking on. Do your research and consider speaking with a fee-only financial adviser who can guide you in the right direction.

Make an effort to create a diversified portfolio to reduce your exposure to risk. Consider using micro-investing apps if you’re interested in testing the waters as a new investor. And keep in mind that you shouldn’t keep all of your money in cash.

“If you’re thinking about buying a car in a year, it makes absolute sense to be in cash. If you’re thinking about going back to graduate school in a year or two, it makes sense to have that already in cash. Beyond that, no,” Crumrine says. “Cash is really not going to allow for any growth. It’s going to at best keep up with inflation.”

If you’re looking into opening a brokerage account, read Bankrate’s brokerage reviews to find the broker that best fits your needs.

Start thinking about retirement

Retirement may be 40 years away, but it doesn’t hurt to start thinking long-term. Even if you can’t afford to save much for retirement, at least save enough to earn your company’s match.

“Take advantage of this — it’s free money — and the money you put away now for retirement means you have to put away less later on to retirement with a healthy income,” Woroch says.

Consider opening a Roth IRA if you don’t have access to a 401(k) account at work. Chances are, since you’re preparing for retirement in your 20s, you’ll still be in an income bracket that’s low enough to qualify for this kind of account.

“The tax advantage of these accounts is that you can take qualified distributions out and not pay taxes on the growth,” Lynch says.  “If you have a long time before retirement that could mean decades worth of growth you would not need to pay taxes on in the future.”

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