It can be a lot to figure out a money plan when you’re starting out. Even though there isn’t a magic bullet for building your savings, here are a few ideas that can help you get started and stay on track.
Here’s the good news about your 20s: Your income will hopefully rise while you move between jobs, go up the ladder, and negotiate raises. However, your expenses will likely increase as you take on new personal and financial responsibilities.
One key to saving money—and beyond—is to watch out for matching higher earnings with more expenses. So-called “lifestyle inflation” is why even some millionaires wind up living paycheck to paycheck.
There is always a middle ground that lets you enjoy your earnings while you also build your savings each month. It’s less about cutting out things you like and more about getting real about your goals and values and building a savings mindset. That could mean saying yes to buying fancy coffee but no to expensive vacations.
Having a strategy for where you keep your savings is also important. For example, you may be able to use tax-advantaged accounts, such as 401(k), 403(b), or IRAs, to save for retirement and decrease how much you pay in taxes each year.
The tax deduction could leave you with more cash to put right back into the retirement account. More importantly, let compound interest go to work, and the contributions you make today could turn into significant money later. In fact, if you save $10,000 a year from when you’re 25 until your 40, you might have more in retirement savings when you turn 65 than someone else who saved $10,000 a year from when they were 35 to 65.
For savings that is not earmarked for retirement, investing or a cash savings account are other options.
An emergency fund, money you can use during a personal or financial setback, is best kept in a relatively safe and liquid account, such as a high-interest savings account (like a Varo Savings Account).
If you’ve already maxed out retirement accounts and have an emergency fund, you could invest in regular low-cost investment accounts like ones at Betterment, Wealthfront, or Acorns.
A good credit history won’t put money in your savings account, but it could save you money throughout your life as you take different loans. See for yourself—check the average mortgage rates based on credit score ranges using FICO’s calculator.
Good credit can also make it easier to rent an apartment, lease a car, and setup utility and telecom accounts without having to pay a security deposit.
Building good credit is pretty straightforward. You’ll need to have accounts that report to the credit bureaus, which most major lenders, credit card issuers, and student loan services do. Then, don’t max out your credit cards and make sure you don’t miss a monthly payment.
There are lots more ins-and-outs to what affects a credit score but that’s the core of it.
Again, easier said than done, and planning ahead may be a good idea. Keeping your expenses low and have an emergency fund may help you get through tough times without missing a payment. You could also learn about making money with side hustles if you’re looking for extra income or when you’re between jobs.
Savings tips and strategies can be helpful, but one of the best things you can do is to become a lifelong learner. Education doesn’t have to stop when you leave school. And for some, personal finance was never taught in school anyway.
Subscribe to a few finance-focused podcasts, find personal finance blogs that you enjoy reading, and take time to learn about the best services to save you money, such as no-fee mobile bank accounts. Make this a regular practice, and you’ll have the know-how to tackle the many financial challenges that you’ll face in the coming years.
Louis DeNicola is a freelance personal finance writer and credit enthusiast. You can find him on Twitter @is_lou.