Your 20s are a time to establish yourself as an adult, both personally and professionally, and establishing good financial habits sets you up for a secure and successful future. Forming lifelong money management skills during this time is essential, but where do you start?
We’ve gathered insights from a Financial Center Manager at United Bank who has been there. She remembers the financial confusion of her 20s and shares some tips.
Mackenzie Cafferty knows that in today’s society, there’s a lot more pressure to be a consumer. With brands and influencers convincing us we “need” every potential purchase, she’s found a method that helps her pause for a moment before slipping into mindless transactions.
I keep a list of “needs, wants, and goals” in my phone. A need could be a new pair of sneakers when my running shoes just aren’t cutting it anymore. A want would be a new pair of fashion-forward sneakers that would be nice to have, though I already have other pairs. A goal could be a big milestone purchase or a more luxury item.
As she comes across items that catch her eye, she’ll add them to her list under one of the three categories. “I then let my needs sit in the list for a couple of days, my wants for a couple of weeks, and my goals for however long it takes me to reach that milestone,” she explains. “This helps me slow down, reconsider, and practice mindful purchasing!”
To take control of your finances, you must know where your money goes. Regularly reviewing your bank account and credit card statements allows you to track your spending habits, adjust your budget, and identify unnecessary expenses (like unused subscriptions) or overspending patterns. This will help you cut back on spending, giving you extra funds to put toward your savings.
Creating a budget is crucial for tracking your income and expenses. This will not only help prevent overspending but also allow you to adjust your spending to prioritize savings. For instance, putting $25 a week into a savings account — roughly the cost of one takeout meal — amounts to $1,300 per year. And with compound interest, as money accumulates in your account, your earnings increase, creating a snowball effect that boosts your savings over time.
Using a budgeting app can help you review your monthly spending to determine what are essential and nonessential expenses and plan your budget accordingly. For an even more budget-friendly approach, Mackenzie recommends using AI tools to create a budget tracking spreadsheet for free. Doing so has allowed her to cut subscription costs from apps and become a more conscious budget tracker at the same time!
Building your savings may feel impossible, especially when rising costs make your budget tighter, but there are simple steps you can take to make saving money effortless. Begin by setting up automatic transfers to your savings account so that a small portion is automatically set aside when you receive your paycheck. Remember, small amounts saved consistently add up.
However, small amounts that you spend can seem to snowball over time, too. “I’d recommend getting a notification every time a credit or debit card is used,” says Mackenzie. “Seeing every expense will make you more aware of how often you’re purchasing, and it also makes it easier to log it in a spreadsheet!”
Once you start tracking where your money goes, it becomes easier to spot patterns and free up cash to tackle bigger financial goals. One of the most impactful steps? Paying off high-interest debt, like credit card balances. Not only does this reduce how much you pay in interest, but by lowering your credit utilization ratio (how much of your available credit you’re using), you may improve your credit score, too.
While your 20s are about experiencing life, it's crucial not to overspend on the fun stuff. Finding free or low-cost activities is a great way to save money while still doing what you love. Just remember to build fun money into your budget.
Another pitfall to be aware of is lifestyle inflation. As young people enter their professional careers, they are making more money than ever before, and this increase in income can lead to unnecessary spending. Familiarize yourself with your monthly income and expenses to ensure you live within your means.
It’s easy to lose sight of future needs, but financial planning for your future is critical. An emergency fund for unexpected costs, such as medical emergencies, car repairs, or job loss, is essential. Mackenzie knows this feeling first-hand:
You can’t prepare for when unexpected expenses arise, but you can adequately prepare to soften their blow. I unfortunately got into a small fender bender about two years ago. While I was upset and shaken up, I was thankfully able to pay for the damage easily by dipping into my savings, which eased a lot of the initial anxiety.
It’s also never too early to start planning for retirement, and putting money toward it now can make a dramatic difference thanks to compound interest. Contributing to retirement accounts like an IRA, 401(k), or other employer-sponsored accounts is a great way to grow your funds over time.
Your 20s are an exciting time to learn more about yourself and build your future. Building smart financial habits now will benefit you immensely in the long run. By embracing these money-saving strategies, you can enjoy the freedom and security that come with financial responsibility in every decade to come.