15 Easy Ways Save Money in Your 20s (and Mistakes to Avoid)

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how to save money in your 20sIn your 20s, you’ll be finally on your own. I won’t lie. It’s a good feeling to be independent and be able to make you own decisions. But, along with that freedom comes responsibility you owe to yourself as well. This is especially true financially. Probably for the first time in your life, you’ll be handling your own finances. You’ll need to make money to support yourself and make sure you have enough for the future. To make sure that you don’t end up broke, here’s how to save money in your 20s and mistakes to avoid.

As fun as your 20s, are going to be, it’s also important not to lose sight of the rest of your life. That is, to make sure that you make good use of this decade to set yourself up for a great future.

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Money Goals in Your 20s

One of the most important things I learned in my 20s is that you need goals. This is especially true when it comes to saving money. Having goals give you something to move towards.

It also lets you check off milestones and monitor your progress over time. If you fall behind, you can look back at what you’ve been doing to see what’s holding you back.

One of the things I did wrong during my early 20s was I focused on a single goal which was: move up at work.

While that helped, keeping yourself limited to one thing lets you lose sight of other important matters. That said, having too many goals can overwhelm you as well.

So, what’s the solution?

Pick 3 main goals you want to achieve.

As far as your 20s go, these are the three main things I think everyone should focus on.

  • Pay off debt. If you have debt, which most people do, that’s going to be your main priority. Student loans are probably on top of the list. They’re likely to be the biggest burden as well. The reason why this is number one is that it accumulates interest. This means the longer you take to pay it, the more money you’ll end up spending. That’s because interest keeps adding up for each day you don’t pay off your debts. The one exception to this is your credit card debt. If you have credit card debt, that’s what you should be focusing on first. The reason is that credit card debt has a very high-interest rate compared to other forms of borrowings.
  • Invest in your career. Your 20s is the time to learn and try things. If you’re lucky enough to find the exact career or business you want to do for the rest of your life, you’ve got a great start! If not, don’t be afraid to experiment. Sticking to something you’ll hate 10 years from now is the last thing you want to do. That’s because by then, you’re older and you’ll probably need to start from the bottom again if you want to switch careers. So, do it while you’re young. Whatever you choose, invest in learning about your craft. You can do this by taking courses, seminars and working for people who may not pay you the most money, but where you’ll learn the most.
  • Start saving. Here, I believe that mindset plays a huge role. One of your main goals here is to make saving money a habit. This will help you cut down on spending. How much you save can be hard to estimate because there are so many factors involved. How much you make, the amount of debt you have, the cost of living where you live and your lifestyle all play a part. But, starting early lets you get ahead when it comes to saving for retirement.

How Much Money Should You Save in Your 20s?

Yes, start saving for retirement when you’re in your 20s. Sounds crazy? Maybe not.

Here’s a chart from J.P. Morgan Asset Management which they use to help their clients get a grasp of how much retirement savings you should have by a certain age.

To use the chart, follow these simple steps:


Step 1: find the closest age on the left column that corresponds to your current age. If you’re still in your 20s, start at 30 years old. This will give you an idea of how much you ought to have when you turn 30.

Step 2: on the top row, find the closest figure to your current salary.

Step 3. find the intersection where your age group and salary bracket meet. For example, if you make $75,000 a year, and you’re 30 years old, the corresponding number is 1.1. For someone 40 years old making $150,000, it’s 3.2.

Step 4: the last step is to multiply the number in the intersection with your current salary bracket.

  • In our first example, the 30-year-old with a salary of $75,000 will get the number 1.1. So, at the age of 30, you should have saved 75,000 x 1.1 = $82,500 saved up for retirement.
  • In our second example, the 40-year-old with a salary of $150,000 will multiply 150,000 by 3.2. This comes out to $480,000 in retirement savings.

If you have less, that means you’re probably spending more of your take-home salary than you ought to be.

Other Goals to Keep in the Back of Your Mind

These are secondary goals. Keeping them in mind will help keep you on course, so you don’t forget about them.

  • Build credit. Credit is very important. Building good credit will help you get better loans and lower interest rates on your mortgage and other future debts. It will also help you get approved for borrowings, like your home or car loans.
  • Build an Emergency Fund. Everyone needs an emergency fund. This is what you turn to when SHTF. While we don’t like thinking of bad events happening, they do. So, it’s better to be safe than sorry. According to financial guru Dave Ramsey, aim for 6 months, especially if you have someone at home with a chronic medical condition. Suze Orman seems to agree. She recommends having at least 3 to 6 months’ worth of living expenses kept away for your emergency fund.
  • Start Saving Up for a Down Payment on a Home. In your 20s, you’re probably renting. Ideally, you’re sharing the rent with a few friends to reduce the cost of housing. A more money savvy way is to move back with your parents. That is if you don’t mind other people talking about it. Looking back, those extra years of rent really add up. So, it may not be a bad idea to swallow your ego in the short term to get ahead later on in life.
  • Start investing. It’s a waste to have your money languishing in your savings account where it doesn’t earn you much. Instead, look for better interest rates or start investing in mutual funds.

Ways to Save Money in Your 20s

Now that you’ve gotten your goals straight, it’s time to consider ways to save money while you’re still in your 20s.

Create a Budget

The best way to make sure you’re saving money is to create a budget. I used to just have an idea of how much I was spending every month thinking that I was easily ending up with a positive budget.

Boy, was I surprised when I finally put everything down on paper. The lesson was, we tend to underestimate our expenses and overestimate our savings.

In reality, you should be doing the opposite. That is, overestimate your expenses and underestimate your savings. This will help you get ahead with your money matters.

The goal of a budget is to make sure that all the money coming in each month is at least even or more than the money leaving your hands.

As a side note, don’t be afraid to keep re-doing and re-adjusting your planned expenses until you get to break even each month. The trick here is to treat it like a game where you need to make incoming money equals outgoing money. Or, better yet, end up with extra savings.

If you’re not sure how to break down your expenses, a good place to start is to use the 50/30/20 Rule. That is,

  • 50% of your after-tax income goes to necessities (ie. housing, food, etc.)
  • 20% of your monthly take-home earnings should go to paying off debt or your savings (if you don’t have debt).
  • The remaining 30% is for your wants. These are non-necessities that you’d like to have like going out, vacations and entertainment.

Automate Your Savings

Another thing that really helps me is to automate savings. This ensures that a portion of your income directly goes into your bank account. That way, you don’t even get to see or touch it.

This really helps because you start to get tempted when you see extra cash available. That’s when your mind starts to wonder, “Hmmm… what should I do with all this extra cash?”

That’s never a good thing when it comes to saving money.

Spend in Cash

Using cash instead of your credit card is something I’ve gotten used to doing. And, it has helped me a lot in terms of saving money.

The reason is, credit cards make spending money very easy. Just pull out the plastic card and you’ve made a purchase.

With cash, you’re instantly reminded that you’re spending. Plus, you don’t have all that cash lying around at home. So, you need to drop by the ATM machine to withdraw it every now and then. This takes more effort to do rather than just pulling out your credit card from your wallet.

Finally, when you pay at the register, counting each bill and receiving smaller bills and coins in return also triggers a memory of spending as opposed to saving, which is against your ultimate goal.

Psychologically, this helps you reduce spending.

Pay Off Your Credit Card Balance in Full Every Month

Credit card companies like tempting us to pay less than we should by placing the “Minimum Amount Due” right where you can’t miss it.


That’s because they can charge you interest for the remaining amount. And, that’s how they make extra money.

By making the minimum payment, you don’t have to pay late fees. But, you’ll need to pay interest on the balance you’re not paying. And, this amount keeps adding up the longer you don’t settle the entire balance.

Paying the minimum amount may seem like saving right now. But, it will cost you a fortune over the long term. This is especially true because credit card companies charge very high-interest rates for non-payments.

In addition, doing this frequently also hurts your credit score, which makes it harder to get a mortgage or loan later on.

Being in finance, I can tell you that credit card companies like it when you only pay the minimum. In fact, they call customers who pay in full every month “freeloaders”. That’s because they’re able to get an allowance of 30 days before paying for the things they purchased at no extra interest cost.

Take Advantage of Sales

Buying during sales goes a long way when it comes to savings. The tricky part is being able to wait for them to happen.

The good news is, you can somewhat predict them. I keep a simple calendar of when things go on sale. Among the best days include Black Friday, Cyber Monday and Singles’ Day. For retailers, right after the holidays is also when prices get slashed.

So, it’s actually a better strategy to buy after the holidays, not before or during.

Get a Better Deal on Recurring Bills

One of the best things about competition is that companies have to “fight” for their customers. This means you can negotiate things you keep paying for.

Whether its insurance, electricity or your cellphone bill, you can ask your provider to give you a better rate. Most will have some kind of deal available, which allows you to cut expenses a bit.

Refinance Your Debt

If you have debt with high-interest rates, it may be worth your while to check current market rates. If the current interest rates are lower than what your debt has, refinancing may be a good idea.

This lets you swap that debt to one where you’re able to pay lower interest on the principal amount. For larger debt like student loans, a difference of 1% goes a long way.

Pay Off High-Interest Debt First

Another way to save money without cramping your lifestyle is to pay off the biggest debt payments first.

This means checking exactly how much you spend on each type of debt payment per month. Then, find the biggest interest expense and pay that off first.

This often comes out to be the debt with the highest interest rate or the one with the largest amount owed.

By getting rid of the biggest one first, you’ll be able to save more money in the long term as far as monthly payments are concerned.

Use a Cash Back Card

Cash back cards are awesome in that they let you get some of your money back for things you would be buying anyway.

The tricky part is finding the right cards. Depending on the products and type of cards, you can get anywhere from 1 to 2% cash back all the way to 6% cash back on certain types of cards.

Track Your Spending

This is something I learned to do along with my budget. One of the side effects of having a tight budget is keeping the receipts and monitoring your finances.

This isn’t much different to running your own business where you want to keep all your receipts for tax reasons.

While it does take a bit of getting used to, it does pay off in a big way. Keeping track of your expenses lets you easily see where you’re spending your money the most. And, it also lets you assess whether you’re spending it on something you really need or just something that you want.

Know How Much Your Electric Bills Are

Electric bills can add up. This is especially true for gas and power.

One good way to keep track of your utility costs is to take a good look at it every month. Before paying, note down how much you’re spending per month. You can likewise check what the meter reads. This gives you an idea if you’re overusing electricity or gas.

This is usually the case during hot or cold months. If you live in California or Arizona for example, it can be tempting to keep the A/C on a lot during the summer. Should that be the case, it may be a better idea to stay in the office longer or hang out at a nearby coffee shop where air conditioning is free.

Similarly, the winters can be brutal if you live in the northeast. As a result, you may end up spending more on heating.

The good news is, there are workarounds for cold and warm weather that let you save money on your electric bills.

Switch to a Better Bank Account

One of the things I learned during my late 20s was not all bank accounts are equal. Just the same, not all banks will treat you the same.

Some banks have a lot of extra fees. They add a fee for withdrawing from certain machines, they tack another fee for certain types of transactions. And, the best one of all is giving you almost no interest for the money you keep with them.

If any of that sound familiar, it’s time to look for another bank or type of account. Ideally, try to find something with an interest rate so your money isn’t just sitting there. Also, be wary of all the extra fees that some banks like to charge.

Get Rid of Subscriptions You Don’t Use or Need

Ditching your recurring subscriptions is another way to help reduce your spending. We all have these extras. Unfortunately, we somehow still keep paying for them.

Subscriptions to the gym, magazines, and cable are all luxuries you can do without. If you have a cellphone, you may not even need a landline, especially if you use your apartment mostly for sleeping only.

In addition, you may want to audit your cellphone plan.  We often get plans that are more than we really need. If that’s the case, then it may be a good idea to downgrade to a cheaper plan.

Travel During the Off Season

When it comes to vacation, planning your trips during the offseason is by far the biggest money saver of all.

During this time, the cost of airfare and accommodations drop significantly. Also, hotels often run promotions and bonuses just to entice visitors. This is one way for them to keep their occupancy rates up during the offseason.

Airplane tickets and room accommodations are often the largest travel expenses. So, if you can keep those down. You’ll be able to save more money while having a good time.

Borrow from the Library Instead of Buying Your Books

This is something I learned during my sophomore year in college. Textbooks aren’t cheap. I quickly realized this during my freshman year.

So, I bought used books from upperclassmen who were already done with theirs. In classes where the professors only used a few chapters of the textbooks, I just photocopied those chapters to save money.

But, borrowing from the library was the best way – it was free, and you just stop borrowing it at the end of the semester.

Avoid These Money Mistakes in Your 20s

This last part is a bonus.

For most of us, mistakes are just as important or even more important than getting things right. The reason is, we tend to remember and learn more from our mistakes than the things we get right.

Here are some mistakes to avoid in your 20s. Many of which I was guilty of. Hopefully, this will help you or someone you know stays away from them.

  • Spend More Than You Make or Live Beyond Your Means. When you get your first paycheck, you quickly realize that you’re independent. Unfortunately, it’s easy to spend more than you can afford. This can include eating out more, taking more trips, buying a car you can’t afford or blowing your entire paycheck on one thing. Don’t do it. Just don’t.
  • Always Buying Cheap Items to Save in the Short Term. Getting a bargain isn’t always a good thing. That’s because some things are cheap for a reason. They’re poorly made or aren’t meant to last. So, when it comes to things you will use a lot of or are necessities in life, choose quality over cost.
  • Not Being Aware of How Much Money Comes In and Out. When it comes to counting money on a regular basis, it’s easy to be lazy. I’m not sure why, but we all seem to fall into that trap. Unfortunately, the only accurate way to know how much you have left at the end of each month is to keep a close tab on everything coming in and going out.
  • Not Setting Financial Goals. This is super important, which is why I chose to start the article out with it. Not having a financial goal can lull you into thinking I can spend the extra money that’s sitting in my bank account. When in reality, you should be saving it for something more important like your emergency fund or for a down payment on your future home.
  • Letting Your Debt Go Unpaid. One of the toughest things to see is how much the original amount of your debt was and how much you eventually paid for it including interest. The difference will knock your socks off!
  • Not Establishing Credit. Your credit score is something that takes time to build, especially because you don’t make hundreds of thousands of dollars off the bat. Just like retirement or saving for a house, you need to start early.
  • Using Your Credit Card to Pay for Everything. While it’s not necessarily a bad thing to do, studies show that paying with credit often makes you spend more than you would when you pay in cash.
  • Not Having an Emergency Fund. In a perfect world, there would be no need for emergency funds. But, as we all know, the worst things happen at the worst times. An emergency fund ensures you have something to fall back on, at least for a few months, should something unexpected happen.
  • Putting Off Saving for Your Retirement. This is always tempting to do. You always think there will be enough time to save. But, that’s not always the case. The chart from J.P. Morgan Asset Management above is a great eye opener on how much you should be saving based on your age and current salary.
  • Not Taking Advantage of Your Company’s Financial Benefits. Take it from me, always ask. And, ask again. Your company’s HR group usually has the most helpful people. That’s why they chose that career. Ask them what the benefits are. You’ll be surprised that there are many benefits you’re missing out on. I know I was!

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