While everyone is telling you in your 20s that you have your whole life ahead of you and you are young. Do not underestimate the importance of the financial decisions you make in your 20s. Making smart money moves when you are just starting out in life can make all the difference in the success of your financial future. A few smart choices and strategic cutbacks in your 20s may actually help you have the means to have an even better quality of life in the future.
It’s Never Too Early to Start Saving
Did you know that your 20s are the perfect time to start creating good money habits? In fact, the good financial habits created in your 20s can save you needless debt and unnecessary financial burdens later in life. Learning budgeting, spending, and saving habits now will set you up for a sound financial future. Here are some financial tips to help you understand why you need to watch your spending and start saving now to get started down the right financial path.
Financial Facts for Savers in their 20s
- Your Expenses Will Increase as You Get Older – It might not be what you want to hear, but the older you get, the more financial responsibilities you have. You may start out with a car payment and monthly credit card bill then eventually graduate to a mortgage, work expenses, childcare, medical bills, and even college tuition for your own children.
- Save Now Enjoy Later – If you start saving in your 20s, you should have a decent nest egg built to rely on. This will allow you to enjoy life more knowing you have a reserve of money in case of an unexpected life event, so you can now afford to spend your money on things like a new car, home, or vacation.
- Inflation is Inevitable – Savvy spending and saving now will allow you to always live the lifestyle you are accustomed to. Lifestyle creep is hard to reverse once you get used to living a certain way, and it can be very difficult to scale back. Proper budgeting and savings in your 20s will go a long way as you plan for your future lifestyle.
6 Budgeting Tips and Tricks To Help You Get Started
1. Understand Gross vs Net Income – When you get your first job, it can be difficult to understand exactly how much of your gross income (total money earned) you will actually be taking home (net income) after taxes, health insurance, 401k contributions, etc. This is important to know when budgeting for your monthly bills, so referring to an online tool that can help you estimate your net pay can be helpful.
2. There’s More to Housing than Just Rent - Understanding that your monthly billing expenses include more than just rent is crucial when budgeting. Be sure to include expenses like utilities, Wi-Fi, television/streaming services, parking fees at work or home, and renter’s insurance that may be required at your rental home or apartment. Monthly housing costs are typically around 36% or less of your gross income.
3. Don’t Forget Your Student Loans – If you are a recent college grad, your new budget may have to include student loans. It is crucial to pay these loans on time to avoid adding interest to the loan and to keep a good credit score. Late payments on student loans or any type of loans or bills can have a negative impact on your credit worthiness. In addition, many federal student loans offer lower interest rates if you sign up for direct payments from your bank account.
4. Socializing Comes at a Cost - While hanging out with friends is a lot of fun, the choices you make when dining out, going to concerts, and weekend getaways definitely add up. Excessive socializing can wreak havoc on your finances unless you designate a monthly amount for these activities when budgeting. And most importantly; all living expenses should be paid before any money is spent on socializing.
5. Automate Reoccurring Payments – Setting up your bills on autopay can help keep you organized and keep money in your pocket by avoiding late fees. Not only will this help you save money, but paying your bills on time will help build credit and increase your credit score, which will result in lower interest rates for loans and credit cards.
6. Use the 50-30-20 Rule - One of the most popular percentage-based budgets is commonly known as the 50/30/20 rule. This budgeting tip divides your income into three spending categories. Following this method will allow you to pay your bills, enjoy life, and grow your savings.
The 50-30-20 Rule Budgeting Method
• 50% on Needs
• 30% on Wants
• 20% on Savings
Budgeting in Your 20s is the Perfect Path for a Successful Financial Future
Your 20s are a great time to start developing good spending and saving habits. Learning to budget and invest while you are young can help you prevent unnecessary debt, save money for important things, and help you build a nest egg for the future.
Make the Most of Your Savings with Allegiance
Once you get the hang of budgeting and making informed financial choices, you will find that you are able to SAVE a little every month. A great way to ensure that you get the most of your savings is to deposit them into a Savings Account with Allegiance! You can earn competitive quarterly dividends as well as keep track of your savings 24/7 with our online and mobile tools. If you have any questions about our personal savings account or other account options, feel free to contact us today!