In your 20s, developing solid financial habits is crucial. Start with budgeting, clear financial goals, and paying yourself first. Build an emergency fund and trim unnecessary spending. Take advantage of student discounts, use credit cards responsibly, and consider part-time work. Avoid lifestyle inflation, educate yourself, review your plan, and seek financial advice for a bright financial future.
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“Any tips on saving money, I suck at it. Every time I get paid I just spend and spend and end up broke as. I wanna really start saving throughout uni so I’m not a useless spender and have shit financial habits later on in life.”
(Original question on Reddit)
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It’s great that you want to develop better financial habits in your 20s. Here are some practical tips on saving money and building a strong financial foundation for the future:
4 essential steps to set up the foundation for saving more
Create a Budget
Start by tracking your income and expenses. Create a monthly budget that outlines your essential expenses (rent, groceries, utilities) and discretionary spending (eating out, entertainment, clothing). Be honest with yourself about where your money is going, as this awareness will help you identify how much you need to cut back on unnecessary expenses and save more for your future through investing.
To help you budget, use budgeting apps or spreadsheets to track your expenses. This will help you understand your spending patterns and identify areas where you can cut back.
Set Clear Financial Goals
Define your short-term and long-term financial goals. Whether saving for university, first home, or retirement, having specific objectives will motivate you to save.
Pay Yourself First
Treat your savings as a non-negotiable expense. When you receive your paycheck, allocate a portion to savings before spending anything else. Automate this process if possible. This doesn’t have to be your entire paycheck, just a portion of it, so these small deposits will grow bigger in the future when you need to spend it on something like your first home, for example.
Emergency Fund
Aim to build an emergency fund with at least three to six months’ living expenses. This safety net will prevent you from going into debt in case of unexpected events.
Other steps to help you save more
Reduce Unnecessary Spending
Be mindful of unnecessary expenses like dining out frequently, subscription services, or impulse purchases. Cut back on these to free up more money for savings.
Student Discounts and Benefits
Take advantage of student discounts and benefits. Many companies offer reduced rates for students on various services and products. For example, if you use subscription services like Spotify, change your plan to a student plan to get 50% off. It’s worth looking into student discounts for many services as this will reduce your expenses significantly, saving more for your future.
Use Credit Cards responsibly
Avoid accumulating credit card debt. Use credit cards responsibly and pay off the balance in full each month to avoid high-interest charges.
Avoid Lifestyle creep
As your income increases, resist the temptation to increase your spending in parallel. Instead, allocate the extra money to savings and investments.
Educate Yourself
Learn about personal finance through books, courses, or online resources. The more you understand about managing money, the better you’ll be able to make informed decisions.
Regularly Review and Adjust
Periodically review your budget and financial goals. Adjust your plan as needed to reflect changes in your income or expenses.
Seek Financial Advice
If you’re struggling with financial discipline, consider seeking advice from a financial advisor. They can provide personalised guidance to help you manage your money effectively based on your future financial goals.
Building good financial habits takes time and effort, but the rewards are worth it. By establishing a strong foundation in your 20s, you’ll set yourself up for financial success in the future and avoid common pitfalls like excessive debt and poor savings habits.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The information in this post is only general in nature and is not personalised financial advice. Please contact us if you want financial advice.
