Most young people start adult life without a clear idea of how to spend, improve their personal finances and stay out of financial trouble. Savvy financial management should be a part of everyone’s education, but unfortunately, it’s not.
We’ve got your back. In this article, we going to outline the best money saving tips that you absolutely must know about managing your finances when you’re in your twenties.
1. Stop comparing yourself to others
Living outside your means will eat through your finances faster than you can keep track of them. And here’s the tragic part: you don’t get anything from it.
- Social media stars go to ridiculous lengths to curate fake images of themselves: they don’t really live like that, so resist comparing yourself to them.
- Any young person who really has money to spare was either handed that money by wealthy relatives… or they worked incredibly hard and made smart choices.
- There’s nothing glamorous about struggling to keep on top of your finances, so live within your means now, in order to upgrade your lifestyle later without feeling the pinch.
2. Know what you want from your financial future
You’ve heard it before: setting goals helps you achieve success in life. However, it’s hard to set goals if you don’t really know what you want out of life. Put some brain energy into figuring that out.
Once you know what you want, set goals that will help get you there. Goals should be SMART: specific, measurable, attainable, relevant, and time-bound. For example, a SMART goal would be achieving an 10% increase in earnings in eight months’ time.
3. Keep a budget
Does budgeting sound boring? Maybe – but only if having savings for a rainy day sounds tedious too.
Budgeting is your primary tool for staying in control of your finances. A household budget is a spreadsheet that keeps a record of your personal expenses. It lets you see where your money’s going, how much you can spend on certain items, what expenses to cut, and even how much you need to earn. To learn to budget, read how-to’s online and start implementing helpful budgeting tools.
Don’t assume that your spending habits are too simple to warrant a budget. A budget is always helpful… and untracked expenses have a way of ramping up without notice.
4. Cutting expenses is easier than you realise
If you’ve written up a budget, you already have a good idea of where your money’s going. Now figure out where you can spend less without making major sacrifices. Remember tip number one? This is where it comes in handy.
- Lower big expenses, like rent or car payments, by downgrading.
- If you have any unhealthy, expensive habits (like smoking, gambling or heavy drinking), NOW is the time to ditch them.
- Write a comprehensive shopping list (complete with spending limits for each item) before you set off on a shopping spree.
- Don’t buy the most expensive brands. Shop around and build up a bank of knowledge on brands and their items’ quality versus price.
- Use the 50/30/20 rule: spending 50% on essentials such as groceries, rent and utilities, 30% on non-essentials such as clothing and entertainment, and putting 20% in a savings account, will let you have fun while staying fiscally responsible.
5. Start an emergency fund
An emergency fund is a sum set aside in a savings account that you can draw on for unexpected, essential expenses. It gives you peace of mind and protects you from making risky financial decisions when you’re in a tight spot.
- In the current financial climate, R15 000 is a good amount for an emergency fund.
- If you use money from the emergency fund, pay it back as soon as possible.
- Use a separate savings account for non-essential expenses like new furniture or holidays.
6. When saving for retirement, start slow
Saving for your golden years takes decades of dedication. Don’t be hard on yourself: people in their twenties are faced with multiple big expenses, and generally can’t afford to save as much as those who are in their thirties or older. If you’re unable to stick to the 50/30/20 rule (which we detailed above), save whatever percentage of your monthly income you can afford, and aim to increase that percentage every year.
7. Take care of yourself
Being unhealthy is expensive: you’re hit with medical bills, and lose out on the income that you’re too unwell to earn. All the basic health advice – like exercising, eating healthy food and dropping unhealthy habits – applies here, but pay special attention to your teeth. They need to be maintained, so start while they’re in good condition.
8. Earn fast, spend slow
To avoid getting trapped in situations where you owe lots of money, think twice when you spend.
- Only allow yourself one credit card.
- Don’t spend more than 30% of your credit (any more could hurt your credit score).
- Only enter into debt that provides long-term benefits ( for example, student loan debt is helpful, but clothing store credit debt is not).
- Give yourself 24 hours for thought before making major financial decisions.
- Educate yourself on current scams so that you can avoid them.
- Don’t co-sign purchases for friends or family members.
- Only loan out money that you can afford to lose.
At the same time, be on the lookout for extra job opportunities. Many people who are successful later in life made their way there by working harder than their acquaintances, and sometimes by holding down several jobs at once.
9. Be aware of your partner’s financial state and skills
In relationships, sharing unselfishly with your loved ones is a sound principle. However, when it comes to money management, you need to assess the situation thoroughly before allowing your partner access to your finances.
- Do they have poor spending habits?
- Do they have expensive tastes that they can’t afford?
- Do they have debt that they are struggling to pay off through financial mismanagement?
If they tick any of these boxes, keep your finances separate and lay down clear boundaries and expectations in an open, honest conversation.
10. Educate yourself on managing finances
There’s no ceiling on learning, so continue to improve your financial savvy and skill by attending classes, reading books, and visiting financial news sites and blogs.
If you’re in your twenties, these points are worth paying particular interest to.
- Learning how to maintain and improve your credit rating.
- Figuring out how to sort out your taxes.
- Learning about investments and investment portfolios.