Saving money is one of the best things you can do for your finances, duh. How about I tell you something you don’t already know?!
Your 20s are one of the most interesting and terrifying times of your entire life. In our 20s we have no idea what we’re actually doing or what’s going on 90% of the time, and no one really teaches us how to start saving money or how to make our finances work properly. That’s why I’m here to help. I want to make your finances one of the best parts of your adult life. So let’s dig in!
Why Do You Need To Start Saving Early?
There are 3 main reasons why you should think about starting to save when you’re young and eager. All 3 are super important to your future financial success so don’t ignore any of them!
Building good financial habits is a great way to go into your real adult life with a good foundation for success. Good habits take time to develop and you’ll never just wake up one day and know how money stuff works.
That’s why it’s so incredibly important to start building this foundation when you’re in your 20s instead of waiting until your 30s or 40s. When you wait to start doing smart money stuff you’re not going to have anything figured out by the time you retire and who wants to wait until retirement to start making good decisions? If you don’t know what kinds of financial habits you should be working on, we wrote an awesome post about all the financial habits that will make you rich in your 20s, check it out!
Building a solid financial foundation is going to influence all the decisions you make going forward. If you learn to save money when you’re young chances are you’re going to save money better in a few years! You’ll be able to buy a home earlier because you’ll have a down payment saved, you could retire earlier because you know how to save, so many great things are going to happen if you develop these habits early.
Emergencies are always going to happen, it’s just the way life works! When you think about the last real emergency you had, how did you deal with it? Did you grab a credit card and deal with it later? Or did you have a nice cushion of cash set aside to cover the emergency with ease?
As you can imagine these two ways of dealing with emergencies have very different emotions connected to them. If you have that nice cushion of money ready to go for emergencies you’re not going to experience nearly as much stress as you would if you had to throw it on a credit card with a 20% interest rate.
Thankfully, you’re still young and you may not be a parent quite yet so your emergencies are going to be a lot less expensive than if you had a single family home, three kids and two cars. If you wanna learn more about building your emergency fund we wrote a great post a few months back that can help you figure it all out, check it out!
Oh, compound interest, how I love you. I’m going to assume that not every person reading this totally understands what compound interest is, so let’s do a mini finance lesson in this post!
Compound interest is interest that gets calculated based both on the principal in your accounts but also on the interest you’ve earned over the years. Make sense? Kind of. Okay, let’s look at an example because finance is confusing.
So let’s say Richard starts putting money in a savings account when he’s 18 years old. He has $1,000 in the account at 18 and he only adds $100 a year until he’s 38. If there was no interest accrued he would have only $3,000 in the account by the time he’s 38.
Richard’s best friend George starts saving at 28 and puts $300 in the account every year until he’s 38. George would also have $3,000 in the account in that 10 years if no interest were accounted for. Okay, so how does compound interest come into play?
Since Richard starting saving 10 years before George he had a lot more time for interest to accrue on this account and he started earning money ON HIS INTEREST. Let’s look at some numbers.
Richard has an initial principal of $1000, he puts $100 in every year, with an interest rate of 5% he would have $6,125 in the account by the time he’s 38.
George has an initial principal of $300 and puts $300 in the account every year for 10 years if it’s also a 5% interest rate he would have only $4,450 by the time he’s 38. See? Richard started early and made way more money off his investment than George did!
Compound interest is awesome and you should start saving as early as humanly possible to take complete advantage of it.
How To Start Saving Money In Your 20s
Okay, so now you know the 3 reasons why I think you should start saving in your 20s (or as early as humanly possible depending on your situation) and now you’re wondering, well… how do I start? Duh, I’ve got you covered! There are 3 key steps towards being able to save a decent amount of money when you’re in your 20s.
Okay, Okay. I know budgets aren’t sexy, but they are effective. Budgeting is the #1 thing you can do to save yourself money because it gives you a great look at exactly where your money is going.
The best way to look at your budget is through the quote “failure to plan is planning to fail”. How does this apply to budgeting? Well, when you make a budget you’re making a plan for your money and giving every penny a purpose. When you decide not to follow a written budget you’re going to fail and saving money because there will be no structure to where your money goes! Makes sense, right?
So where should you start when budgeting? My favourite budget for absolute beginners is the Zero-Based Budgeting Method because it doesn’t allow for much guesswork.
2. Side Income
Let’s face it, you’re never going to have more time or more energy than you have right now. This is the absolute best time for you to try and create a side hustle or side income for yourself.
Look at it this way… If you make an extra $1,000 a month from a side income you could save that money or pay off your debt. You can live off the income from your 9-5 or regular job and the rest of the money should go towards smart financial decisions! If you save $1,000 a month you can save $12,000 a year and that’s some awesome savings if you ask me!
Not sure what to do for a side income? We’ve got a couple ideas. Check out these hobbies that can make you a ton of money or these 4 awesome side-hustles that can make you great money!
- Want to be a blogger? Being a blogger is my favourite way to make a great side income! You can create an online business for yourself and make a great amount of money! Unsure about starting a blog? Check out this post on the 13 Reasons Why You Should Start a Blog (every time I read that blog post title I think about the Netflix show 13 reasons why and then it makes me want to watch it… okay, bye)
3. Ignore the FOMO
FOMO is one of the #1 killers of a great budget. Wait, Taylor, what is FOMO? FOMO stands for Fear Of Missing Out. Well, what the heck does that mean? Okay, I’ll explain! Hold your horses…
These days everybody posts just about everything on Instagram and Facebook and you get to experience what everyone else is doing every single day. This causes us to think that our lives just aren’t good enough and we fear that we are missing out on the good stuff.
This is a huge reason why so many young people are in debt and not saving because they don’t want to be the only one not getting a new car, or going on an awesome vacation.
How do you avoid FOMO? Well, the best thing you can do to try and avoid feeling FOMO is to create a goal for yourself and stick to it. I know it’s hard to avoid what other people are doing but it’s the best way to save money.
You’re allowed to say no to things. You don’t have to go out drinking if you can’t afford it or if you don’t want to. Just have a goal and focus on it!
Bonus Tips: Other Awesome Ways to Save Money Money!
- I don’t know where I read it but last week I read an awesome post about ways to stay motivated to save money and they mentioned that a lot of banks allow you to rename your savings accounts. Imagine if every week you’re putting money in a savings account called new car or Thailand trip instead of account number 385834827. I think that would be incredibly motivating and would make saving money a whole lot easier.
- Have you ever tried meal planning? I find that having a plan when going to a grocery store is the number one way I save money because I don’t end up buying random things I don’t need or too much of a certain product that will just rot in my fridge. There’s this awesome service called $5 meal plan that for only $5 A MONTH will send you detailed meal plans and grocery lists for awesome meals you can make at home. Check it out and get your first two weeks free!
- The first thing you should do when you start learning how to save money is cutting out unnecessary expenses. The best way to do this is to track your spending for a few weeks and see the places where you can cut. Check out this post on the 10 things you should stop buying to save you a ton of money!