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How to save money during your 20s

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Knowing how to save money is an important financial skill, but one that rarely gets taught in schools. Saving can be especially difficult for young adults who are paying off student loans and working entry-level jobs. Nearly 45 percent of Americans in their early 20s have no savings at all.

What’s the best way to get started saving money while you’re in your 20s? How much should you try to put away? In this article we’ll look at some simple saving habits that can help you build wealth and create a strong financial foundation for the rest of your life.

Here’s what we’re going to cover:

  • How much should you try to save during your 20s?
  • Use the 50/30/20 method
  • Pay yourself first
  • Name your savings account
  • Check your finances regularly
  • Set up an emergency fund
  • Create a retirement account
  • Bump up your income

Key takeaways:

  • Many people in their 20s don’t save much money. However, developing good saving habits during this decade can help you pay off student loans, save for a house, and set you up for greater financial security throughout your life.
  • It’s a good idea to save 20 percent of your income. You can make this process easier by using the 50-30-20 rule and automatically transferring 20 percent of your paycheck into your savings account each month.
  • Other strategies for successful saving include naming your savings account, checking your finances regularly, and bumping up your income by asking for a raise or starting a side hustle.

How much should you try to save during your 20s?

The amount of money you’ll be able to save will depend on your job, income, and expenses. If you aim to set aside 20 percent of your income, you’ll be off to a great start. The earlier you begin to save, the better chance you have of reaching financial independence.

Saving money throughout your 20s can help you:

  • Pay off student loans
  • Buy a home
  • Pay for a wedding
  • Go on a vacation
  • Establish a retirement account
  • Enjoy peace of mind about finances

But how exactly do you get started saving? Here are seven strategies you may want to try.

Use the 50/30/20 method

In order to save effectively, you first need to know where your money is going. By tracking your income and expenses over several months, you can set up a budget for yourself using the 50/30/20 method.

With this method, you allow 50 percent of your income for essentials—rent, food, utilities, transportation, and the like. Another 30 percent of your income can go to pay for things you enjoy but that are not absolutely necessary, such as travel, entertainment, and dining out. The remaining 20 percent is the money you save.

Putting aside that 20 percent of your income every month is a habit that will help you build wealth your whole life. By starting now while you’re still young, you greatly increase your chances of being able to buy a home, have a comfortable retirement, and meet your other financial goals.

Pay yourself first

You may find that if you wait until the end of the month, you don’t have 20 percent of your income left to save—it’s been spent already.

That’s why many financial experts recommend paying yourself first. This means that you transfer 20 percent of your income into your savings account as soon as you receive your paycheck. You may want to set up automatic transfers with your bank to make this process easier. Knowing that you’ve already set aside that money, you can spend the rest of your income with peace of mind.

Name your savings account

Here’s something fun: Try giving your savings account a nickname. Some banks allow you to choose an online name for your account. This can remind you why you’re saving, and help you stay excited about the process.

What’s your big financial goal right now? Here are a few nickname ideas:

  • Homeowner by 30
  • Paris trip 2025
  • Get out of debt this year
  • No more student loans

Check your finances regularly

One way to keep your savings on track is to schedule regular financial check-ins with yourself, either weekly or monthly. You can use this time to pay bills and balance your checkbook. If you like, you can even create a spreadsheet to keep a record of what you spend. Reviewing this information regularly can help you make smart financial decisions day to day.

Set up an emergency fund

An emergency fund is the money you set aside to pay for unexpected events. It’s a good idea to keep at least three to six months’ worth of living expenses in your emergency fund. That way you will always have cash on hand if you lose your job, have large medical bills, or need to repair your car or computer.

Without an emergency fund to fall back on, you might have to charge these expenses to your credit card. While credit cards are extremely useful, they can also cost you a lot of money in interest if you don’t pay off your entire balance each month. An emergency fund is a good alternative to using your credit card for large bills.

Create a retirement account

When you’re still in your 20s, retirement can seem impossibly far away. Why do you need to think about it now?

Because this is the best time to start a retirement account. The longer you have an account, the more interest it will earn and the more years your savings will have to grow. The small, regular contributions you make now may be worth many thousands of dollars later.

Two of the most popular retirement plans are the 401(k) and the IRA.

401(k)

A 401(k) is a tax-deferred retirement savings account offered by some employers. Having the taxes deferred until later lets you contribute a larger part of your income. Some employers will even match your 401(k) contributions, so you get twice as much money put away.

IRAs

IRA stands for individual retirement account. Traditional IRAs and Roth IRAs let you contribute post-tax income to your savings. If you wait until retirement to withdraw this money, you won’t have to pay any more tax on it.

Bump up your income

Maybe your current salary just isn’t enough to cover all your monthly expenses and let you save money too. What can you do to increase your income?

Try getting creative. In your existing job, you could ask for a raise. Taking courses to expand your skills or earning an advanced degree could make you more valuable to your employer.

But your regular job doesn’t have to be your only source of income. Here are some ideas to bring in more money.

  • Start a side hustle
  • Freelance your services
  • Drive for a ride-share or food delivery service in your free time
  • Sell belongings you no longer need
  • Rent out a room in your home

Developing multiple income streams can also offer you more financial security if you lose your job.

Oportun: Affordable lending options designed with you in mind

Now that you understand how to save money in your 20s, you can learn about how Oportun may be able to help you if you’re looking for affordable saving, investing, and borrowing options.  Visit our homepage to learn about:

  • Saving
  • Investing
  • Personal loans
  • Credit cards
  • And more!

Sources

GoBankingRates. 20 things you should know about saving money in your 20s

Investopedia. The 50/30/20 budget rule explained with examples

Investopedia. What does paying yourself first mean? How it works and goal

Investopedia. 401(k) vs. IRA: What’s the difference?

NerdWallet. Emergency fund: What it is and why it matters.

 

The information in this site, including any third-party content and opinions, is for educational purposes only and should not be relied upon as legal, tax, or financial advice or to indicate the availability or suitability of any Oportun product or service to your unique circumstances. Contact your independent financial advisor for advice on your personal situation.


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