Life in your twenties can definitely be an exciting time. For many it is the first time in life when one is able to truly feel like an adult. As one launches into the decade of his/her twenties, it usually brings with it the start of a career. A new job is definitely a good thing since it means that one is able to bring home a significant paycheck for the first time in one’s life. Depending on one’s career choice will also depend on how much one is making right out of college. Unfortunately, the economy is still in recovery mode, which means that it is not particularly easy for recent grads and first-time job seekers to find employment. Not only that, but student loan debt is continuing to increase, with the average student loan at $27,000.
Early adulthood may seem glamorous, but the novelty starts to wear off the first time one has to start paying bills or student loans. For those who are lucky enough to find a job right out of college, the income that is brought in is hopefully enough to cover those dreaded “real world” expenses. But what about your savings account? It’s important that your account is fed as often as possible.
While those in their twenties may still be getting used to what it’s like to be a contributing member of society, it’s important to also think long-term which starts with saving money. Although there is no one formula, money can start to be saved in one’s twenties through:
- Living within your means
- Making sacrifices
- Setting goals
Let’s delve into some of the key ways that one can save money for the future while still making the most of being young, wild and free!
Cut Down Living Expenses
Typically entry-level salaries are not super generous right from the get-go, which makes sense since after college an individual does not have any work experience. As such, the smaller the paycheck the less there is to apply to all of one’s living expenses. There are two types of expenses in life – necessities and wants/desires. In one’s early twenties it is important to get your living expenses to be as low as possible.
Granted, living expenses such as rent, electric and transportation can start to add up. A way for one to put some control on the necessary living expenses is to look for ways to cut costs. If you’re only taking home $30k a year right out of college, it doesn’t make sense to rent your own apartment that costs $2k a month. Instead, you should look for ways to cut down your rent by finding a smaller, but cheaper apartment or living with roommates or even your parents if that is an option. While you will always have some living expenses, the less you spend on them the more you can feed your savings account.
It’s much easier to spend money than it is to make it. It can certainly be tempting to spend your money especially if you are living in a major metropolitan area where there are tons of boutiques and restaurants. Just because you are surrounded by these places does not mean that you need to frequent them every day or even every week. Buying an expensive piece of clothing or having a nice meal at a high-end restaurant should be a treat. Trips to these places should not be commonplace for those in their twenties.
You can easily save money by doing your own grocery shopping and bringing lunch to work and staying in to eat in the evenings. It’s not to say that you can’t enjoy some of the fine eateries in your neighborhood now and then, but it should not become a habit. Besides, if you go out to eat all the time it won’t be as unique. Not to mention, too much of dining out will cause your belly to grow instead of your savings account.
Have An Emergency Fund
Life can be unpredictable. You never know when some unfortunate event may happen that could cause your financial circumstances to change. It’s important to always have money that can be used to live should an emergency arise. Nest eggs are not just for those who are looking to retire, they are for everyone! Experts recommend saving a fund that will last at least 8 months. Your emergency fund can be combined with your savings account, but should not be part of your 401k or pension plan since the money accrued here cannot be withdrawn without a penalty.
Prepare For Retirement Early
When you’re in your twenties retirement may seem like it is eons away. While it is true that you will not likely retire until forty years or so, it is never too early to start putting money away in a 401k or pension plan. The earlier you invest, the better. A Roth IRA is also something that one should consider while still young. With this investment option you can withdraw any money you put into it at any time, without any taxes or penalties.
Keep Credit Score Low
Credit cards should be used as a way to help with cash flow. If possible, credit card bills should always be paid in full unless using them for a large purchase. A strong credit score can make all the difference between securing the apartment you want and losing out in a competitive rental market. Overall, it is OK to have some credit card debt, but it is important to pay attention to the interest rate. An interest rate of 30% is obscene while a rate of 1% to 2% is more manageable. The bottom line is that you should be using your credit card in your twenties to help build up your credit, but should pay it off as quickly as possible!
Fresh-faced twenty-somethings have much to look forward to. Life in your twenties can really be an amazing time. It’s possible to really make the most of this decade of your life while still being fiscally responsible. Ultimately the way this can all be achieved is by using some common sense (don’t be a spendthrift)! If you live within your means and are smart with your money you will see your savings grow. Starting to save money in your twenties will make for a bright and comfortable future ahead!