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5 steps to start saving in your 20s

You should start saving for retirement as early as possible.  By starting early, you have the benefit of time on your side. The longer your money is invested, the more it can grow thanks to compound interest.

But compound interest doesn’t work in some situations because of rules surrounding vesting periods. It’s important for you to know about these rules and how they could affect your retirement savings.

Why you should start saving in your 20’s?

You should start saving for retirement as soon as possible, ideally in your 20’s . By doing so you get to take advantage of compound interest. The earlier you begin saving, the more time your money has to grow thanks to that powerful force. These early years can make a huge difference down the road because of compound interest .

For example, consider two investors who both invest $10,000 every year for 40 years starting at age 30. The first investor starts saving when he’s 30 and stops at age 70. The other one starts at age 20 and stops at age 60. At the end of those four decades, assuming a 7% annual return , the first investor has about $1.4 million; she’d be able to withdraw around $88,000 a year and live off this money for the rest of her life (assuming 3% inflation ).

The second investor comes out with over $3 million by investing only half as much as the first one ($20,000 annually) . Even though he saves less than his colleague, he’ll actually enjoy a higher standard of living at retirement..

Are you still unconvinced that compound interest works its magic early on? Then let’s say an employer offers you a certain percentage of your salary in the form of a 401(k) match, up to 6%. If you are paid $60,000 annually and contribute 6% or $3000 each year, based on 10% annual returns , your account balance will grow to around $180,321 after 40 years. That accounts for $54,322 in employer contributions . So even though you don’t max out your employer match, you’ll still end up with a pretty decent sum.

Investing early on has many benefits, but not all investments allow compound interest to work its magic . That’s because of rules surrounding vesting periods , which can affect your retirement savings depending on the type of investment account you have.

How to start saving in your 20’s?

Your starting point will obviously depend on your financial situation and how much you can save each month. However, most experts agree that it’s important to start with an emergency fund , then pay down any debt you may have (credit card, student loan) before investing.

Once those two things are out of the way, you should determine how much money you can invest in a year and start putting that amount away every month no matter what . Of course, this won’t be easy at first especially because of all the other expenses young adults face like rent, groceries , etc. But the sooner you make saving part of your lifestyle, the better prepared for retirement you’ll be when that time comes .

A good rule of thumb is to try not to touch the money you’ve invested . If your account values go up, don’t panic and sell. Even if they go down some , don’t be tempted to prematurely redeem them . Remember that no one can predict with certainty where the markets will move so it’s better to stay put until retirement age .

Your investments should be diversified across various asset classes such as bonds , real estate, etc. If you have a 401(k) from your employer, you’ll have access to a wide range of investment options that can help you grow your money at a reasonable rate without taking too much risk . Unfortunately, many young adults fail to start investing for their retirement because they believe saving is impossible in their current financial situation. They often think that only wealthy people can invest or that they need a large sum of money to open an account. But the truth is you don’t need a lot of money in order to start saving for retirement .

The financial barriers stopping young adults from investing are very real, but not insurmountable. For example, if you can set aside $14 per week , that’s already around $700 a year. Allocate this amount between two types of investments : one low-risk and one high-risk, where the latter will offer higher returns but can also lose value more quickly . Over time and with compound interest working its magic , your $700 investment every week will turn into nearly $100,000 by age 65 1/2 and could even be worth over $200,000 after you factor in employer matches .

Here are some interesting statistics on young people’s saving habits :

  • Only 33% of young adults have tried to calculate how much money they need for retirement.
  • Of those who have attempted to determine how much they will need , 36% expect their expenses to be around $50,000 annually.  But according to the federal reserve , that amount will not be nearly enough considering that expenses for retirees over 65 years old rise an average of 5% every year .

Trying to save more? 

7 steps to start saving money in your 20’s

1.  Make a budget

You can’t save money if you don’t know where it’s going. Make a list of all your expenses and prioritize them according to their urgency . For example, your food bill may be relatively low but groceries go bad quickly so they should be part of the first category. Your rent or mortgage payment on the other hand is more important now that it represents most of your salary, so this expense should be one of the top ones as well. Then move on to bills with lower priority such as recreational activities, clothing purchases or restaurant outings .

2.   Cut down on unnecessary expenses

Your list might give you an idea of which items represent the bulk of your spending every month and could therefore stand some cutting down. Question some of these costs and see if there’s a cheaper alternative:

– Can you stop buying coffee every morning and make your own instead?

– If you and your friends like to dine out, can you cook more at home? 

– Do you really need that expensive gym membership that only gives you access to machines and not classes ?

3.  Start saving today  

Once you’ve figured out how much money is left after expenses, put aside as much cash as possible . You should try to save at least $14 per week , but the amount isn’t as important as establishing this habit of putting aside money no matter what. The easiest way is to open a savings account and have the bank transfer the desired amount directly from your checking account to the savings one on a weekly basis (you might have to negotiate some of these transfers with your bank though).

4.  Track your progress  

Setting a weekly goal for yourself is fine, but you should also monitor how you’re doing . Compare your spending habits from week to week and see if you can spot any patterns that lead you to overspend on certain items . If so, try tweaking them until they become more efficient.

5.  Take advantage of matching funds offered by employers  

Many companies match what their employees save in 401(k) plans on a yearly or even quarterly basis up to certain limits. This means that if you contribute $1000 to your retirement fund, your employer will chip in another $1000 . The best part for them is that the money comes from their budgets and not out of managers’ pockets.  If you’re not taking advantage of this offer, it’s time to fill out a form and start contributing.

6.  Make the most of your debt  

There’s no need to pay interest on credit cards or other types of loans if you don’t absolutely have to. Instead, try borrowing as little as possible from family members and friends , unless you’re happy with the terms they want for loaning their money back . You can also try consolidating your various debts into one loan with a lower rate that will save you money over time . This could be an especially good step if you’ve already identified what items make up a bulk of your monthly expenses (such as rent, food bills etc).

7.  Get a financial planner 

If you don’t know what to do with your savings, invest it in some other type of investment . There are many reputable financial planners out there who will help you make money from your savings over time.

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How to get saving in your 20’s

Considering you’re in your 20s, you’re most likely not earning a lot of money. However, the good news is that this is most certainly the lowest salary you will get throughout your adult working life. Better possibilities and pay are likely to come with time, more expertise, and a broader professional network as you grow in years and years of experience. 

However, this does not preclude you from making an effort to save and invest the money that comes into your account. In fact, your savings practices in your 20s may not only help you avoid financial hardship later on, but they can also get you into the habit of living on a tight budget and prioritizing your savings every month.

A large number of individuals in their 20s are coping with significant amounts of student loan and credit card debt, and many are living paycheck to paycheck, dreaming of the day when they will be able to start using their money to achieve their financial objectives. 

While it’s tempting to believe that financial planning is meaningless at this point in your life, the fact is that there are certain fundamental techniques you can put in place regardless of how much debt you have or how much money you generate.

It seems that a large number of individuals in their 20s would characterize their relationship with money as ‘complex.’ In the case of many Millennials, for example, they prefer to spend their money on experiences rather than on material belongings or assets like real estate. 

As for spending thousands of dollars on travels to ‘must see’ countries such as Bali and Thailand, although there is value in once-in-a-lifetime experiences, it is probably best to postpone such expenditures until you have greater financial stability.

Reasons why you should begin saving money in your 20s

Nobody can convince you that it is ever too early to begin saving for your future. There is a widespread belief that saving is something that only people of a certain age should do for themselves. This, however, is not the case. Saving money is one of the most effective methods of ensuring long-term as well as short-term financial security, and the sooner you begin, the higher your chances are of success. Young professionals, in particular, must make financial plans and account for the fact that life will throw them curveballs from time to time.

Below is a list of five strong reasons why you should start saving in your 20s.

Organize and manage your expenditures

Is it becoming old to hear your parents complain that you’re squandering their hard-earned money on things like a trip, the latest iPhone, or a car? Earning your own money but losing track of how much you’ve spent in a whirlwind of dining out, shopping excursions, and weekend plans? This is a common problem. This is precisely why you should save and invest your money. 

This will enable you to take care of all of your incidental bills without having to worry about receiving a lecture from your friends or family or your conscience.

 Your Habits Must Be Disciplined

Making the deliberate choice to begin saving as soon as possible disciplined your behaviors. You begin to make spending decisions that are more financially responsible. Rather than saving the money you have leftover at the end of each month after paying all of your bills, put aside a little amount at the beginning of each month to ensure that you have disciplined savings.

Prepares you to deal with emergency situations

Do you have unexpected healthcare or energy expenses that have piled up? Early saving ensures that you have a safety net in case of an emergency, which is important in today’s society. No one wants to be trapped on a remote island in the event of an emergency, and setting aside a little amount of money from your income on a monthly basis prevents you from finding yourself in this situation.

Waiting is a waste of time.

Waiting to start saving might really cost you money and have a significant influence on the amount of money you have leftover after paying your numerous bills and obligations. The length of time you wait may have a direct impact on the yearly returns you get, which can have a negative impact on your little nest egg in the long term. 

It is also advisable to be familiar with the notion of compounding. Compounding is the process through which your money is reinvested, resulting in a return that is twice as large as the original investment. This procedure is advantageous because it allows you to earn interest on money that is now lying idle in your account.

Retirement seems Less Dreadful

Most individuals find the notion of retiring to be a terrifying concept. Such is not necessary, however, for it to be the case. Starting early on in life may provide financial stability, allowing you to stop depending on others to cover your costs and live independently of others. 

Investments via a reliable investing business are a fantastic choice while you are in your 20s. As a result, by the time you reach retirement, you will have earned a substantial sum of money.

Where to begin saving money in your 20s

Learning these tactics can assist you in laying the financial groundwork you need to get through this difficult period in your life and position you for a prosperous financial future ahead of you. Continue reading for eight easy methods to break free from the paycheck-to-paycheck cycle and start saving money as soon as possible.

Make a financial plan.

A structure cannot be constructed without first developing a blueprint. If you don’t have a strategy, you can’t expect to manage your funds effectively or reach any form of objective. When you create a budget, you’ll have a clear understanding of how much money is coming in and how much is going out (as well as what you’re spending the money on).

The key to developing a budget that you can keep to is to make sure that it is practical in nature. It must take into consideration all of your normal spendings. It also has to illustrate how much money you’re saving as part of the process.

Making a financial plan and setting aside money should be something you do in advance — something you make place for in your budget — if you want to be a successful saver. If you don’t plan ahead or if you just save whatever money remains at the end of the month, you won’t go very far in terms of saving money.

You should also include in the most significant savings objectives you have in mind while creating your budget. You’ll be better prepared to go on your next summer vacation or to pay for unexpected expenses if the occasion calls for it.

Save money on your housing costs.

Housing is often the most expensive monthly item in a person’s budget, but it is possible to live comfortably in your 20s without spending a lot of money. Avoid renting a high-end apartment that will strain your budget so thin that you won’t be able to save. 

Maintain adherence to the 30 percent rule, which dictates that you spend no more than 30 percent of your total monthly income on rental expenses. As a result, if you make $4,000 a month, your rent payment should not be more than $1,200. Alternatively, you might follow the 50/30/20 rule, which would require you to spend 50% of your budget on basics such as rent, food, and utilities.

Consider your options carefully while searching for an apartment or moving to save money. Don’t settle for the lowest choice. Look around for houses that fit your requirements and are within your budget. Inquire about move-in promotions and lower pricing if you plan to sign a long-term agreement. You might also hunt for a new apartment to rent during the winter months when demand is lower in the hopes of securing a lower price. 

You can try moving in with relatives (if at all feasible) or finding a roommate to help you save more money if owning your own apartment is still out of reach.

Don’t go overboard with your transportation expenses.

Spending money on a fancy automobile in your 20s, particularly if it’s out of your price range, is a poor investment. When a vehicle is expensive, it should not be driven just for the sake of prestige, and it should not be driven for any other reason than to be comfortable. Purchasing a dependable used automobile is often a better financial decision than purchasing a brand-new vehicle, and you can even browse online if you need to purchase a vehicle quickly.

Does your home place you in a location where you can go about by using public transportation? If you don’t drive, you’ll save money on car payments as well as on expenditures such as gas, insurance, vehicle registration, maintenance, and repairs, which may add up to several thousand dollars each year.

Start putting money aside.

If you’ve reached the stage where you’re ready to begin investing, experts recommend beginning with something basic. Determine your risk tolerance and then determine what investment possibilities are available to you depending on the level of risk you are okay with taking on. Prepare for the future by doing research and consulting with a fee-only financial consultant who can point you on the correct path.

In order to decrease your risk exposure, make an attempt to build a varied portfolio of investments. If you’re interested in testing the waters as a novice investor, you may want to consider utilizing micro-investing applications. It’s also important to remember that you shouldn’t store all of your money in cash.

If you’re planning on purchasing a vehicle within a year, it makes complete sense to pay in cash upfront. If you’re thinking about returning to graduate school in the next year or two, it makes sense to have the money set up now for that purpose. 

Practice Money-Saving Techniques

We may reap incredible financial advantages by refraining from purchasing, just as intermittent fasting can help reset our digestive systems and make our bodies feel renewed. Start small—and quickly—by spending money one day a month for the first several months, and then gradually increase your expenditure. 

Eventually, you’ll notice that you’re beginning to examine your purchases more and more, clearly distinguishing between desires and requirements. After a week of not spending money, you’re likely to find yourself instinctively analyzing more of your purchases and abstaining from those that aren’t really required. 

Another advantage of this game is that it is a great exercise in delayed gratification. Tell yourself that you will appreciate the anticipation of really appreciating that treat when you actually purchase it instead of breaking your finances quickly to get some ice cream or another delicious dessert delight.

Don’t forget to be deliberate about your fasting as well. Consider keeping track of some of the purchases you intended to make but ultimately decided not to and moving the majority of that money to your savings account. You can also examine your budget at the end of each month to see if there is an unexpected excess and put that money aside.


Saving money in your 20s can help you reach both short- and long-term financial objectives. Some experts recommend saving at least 20% of your monthly salary, but many people struggle to save this amount each month.

Making wise financial choices has long-term rewards that may assist you in achieving financial success in the future.

Saving money in your 20s might be difficult, but following these ideas will assist you in getting started. If you are burdened with debt, make a strategy to begin paying it off as soon as possible. It’s also possible to raise your credit score in order to be considered for debt consolidation loans and balance transfer cards, which might save you a lot of money on interest.

 Investing money is a great way to save, but it may not be right for everyone. Create your own strategies and goals, and begin implementing them today.

Once you’re able to start saving some money on a regular basis without depleting your income (or even if you can only manage to put aside a small amount each month), you should consider investing in long-term savings accounts like 401(k) s—and even Roth IRAs —to boost your earnings. 

Don’t forget that there are other types of retirement accounts beyond what the government offers you—and utilizing them can put more money in your pocket.

You should also consider purchasing real estate or other assets that may appreciate over time, but never invest with money that you will need to use within the next five years. And if you do buy an asset, don’t put it on credit. 

Lastly, getting a second opinion about your money won’t hurt! Connect with one of our financial planners today to set up a meeting:

It is never too late to start investing in your financial future!

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