How To Save When You're In Your 20s

Posted by Simon Moore on August 6
sam-schooler-4824-unsplash

Chances are that your twenties come with a lot of change. Your first serious job, perhaps your first proper car, and maybe your first place to rent. With all these first  going on, it's important to also get into some good financial habits.

Your monthly pay is not your budget

The first thing to be aware of is that there should be a difference between how much you are paid and what your budget for spending is. It would be magical if you monthly pay was exactly what you needed to live off, and, for many, it seems that way. But, you can do better.

Think about what you really need to spend each month. If you just spend until your money is used up, then yes, predictably you'll find you 'need' every penny that you earn, or, even worse, go into debt.

 

Saving just a little each month

As you start saving, it can be a great time to start to learn about the world of investments. It may seem complicated, but understanding your financial decisions will set you up well for decades to come.

If you can put just a small amount aside, then you can get into the habit of saving. That's a really healthy habit to get into, even if the amount you actually save is small to start off with. Yes, you may have to give up a few things to make sure you save, but the benefit is that you'll be on a course to become financially independent over time.

One really helpful move here can be to increase your savings rate as you pay increases. This is a relatively each way to save. Making big cuts to how much you spend in order to support saving, can take a lot of effort. On the other hand, if you get some kind of bonus or pay rise then saving most of that is far easier. This is because it's money you're not in the habit of saving and you're already able to live off your earlier income. So instead of just spending all of this 'new' money, try saving at least some of it. By doing this you may be surprised how quickly your savings rate increases over the years. 

 

Compounding

Albert Einstein called compounding, "the eighth wonder of the world." He was talking about the ability of savers to get paid extra money on the money that they earn over time.

The reason that compounding is important to young savers is that the value of compounding goes up the more time you have. If you start saving when you're young you have a lot more time for your money to potentially grow, and then compound, over the years. Therefore, it can be easier to reach your financial goals by starting young.

 

Learn

Just as saving can be an investment in your own future, so can a little time spent learning the ropes of investing. It's time well spent that will help you over the coming decades. You can get started now by watching a few of our introductory quick videos on the fundamentals of investing.

 

Topics

Written by Simon Moore

He was previously CIO of FutureAdvisor, a US digital advisor. His most recent book Digital Wealth, explains automated investing. He studied economics at Oxford, and completed his MBA at the Kellogg School of Management.

Ready to see how your money could grow?

a month

Build a free example investment portfolio with no commitment.