5 steps to save more money in your 20s

Do you have a resolution to get your finances together in 2019? A lot of people in their 20s are dealing with large amounts of student loan and credit card debt and living paycheck to paycheck, dreaming of days when they can begin to use their money to reach their financial goals. While it’s easy to that think financial planning at this stage in your life is pointless, the truth is there are some basic strategies you can implement, regardless of how much debt you have or how much income you’re earning. Learning these strategies will help set up the financial foundation you need to move through this challenging time in your life and set the stage for a strong financial future.

1. Create a budget

Even as a young adult who may not be making that much money yet, budgeting is critical, as it allows you to see how much money is coming in and going out every month. Although most 20-year-olds understand they should budget, the reality is most just don’t do it. Get a budgeting system as early in place as possible and review how you are spending your money so you can make adjustments, if necessary, to ensure you are living within your means and able to save for your financial goals.

The basic budget formula for after-tax income is:

50% for fixed expenses, such as housing (28% or less for housing expenses), basic food, insurance premiums, etc.

20% for financial goals. This would include extra debt payments, your cash cushion, retirement, etc.

30% for variable expenses, such as dining out, entertainment, travel, etc.

2. Build up a cash cushion

The goal of a cash cushion is to have three to nine months of your fixed expenses in a savings account to pay for life’s unexpected incidents. Life always throws curveballs—your car breaks down, your computer crashes or you receive an unexpected medical bill—and having money in the bank to cover those expenses will help you maintain your financial peace of mind. If your fixed expenses are $3,000 per month, you should aim to build a cash cushion of anywhere between $9,000-$18,000, depending on your comfort level, job security, etc. That sounds like a lot, I know. But remember, just start with what you can to build you cash cushion over a few years. Again, even if it’s $10 a week, that’s still one step in the right direction.

3. Keep an eye on your credit score
Our credit score affects nearly everything in our financial lives. It affects the interest rate on the car loan we apply for, the mortgage loan, the credit cards—even employers and landlords can reference your credit score when reviewing your application. By monitoring your credit score, you can see where you stand and what you can do to improve it if necessary. Use websites like creditkarma.com to view your credit score (not your actual FICO) regularly for free and then pay to see your actual credit score at least annually using annualcreditreport.com.

4. Create a debt reduction plan

The first step is to make a list of all your debts. Get clear about how much you owe, the interest rate of each debt, and the minimum payment due. Then review your budget to determine how much you can realistically add toward extra debt payments and start with the debt with the highest interest rate while paying the minimums on the rest. This will allow you to save the most in interest payments. Once the debt with the highest interest rate is paid off, move on to the second highest, and so on.

5. Focus on building your earning potential

Income is one of the biggest factors in wealth creation over time. After all, if you don’t make money—or don’t make enough money—it is very difficult to save for your financial future. So if you can’t save as much as you would like to due to your income level, focus on ways to increase your earning potential for the long run. There are a lot of free courses you can take online, and even watching YouTube videos to sharpen your skills is something anyone can do. There are plenty of ways you can earn extra money on the side. Think outside the box, and continue to focus on increasing your earning potential every year.

This article was originally published on Create and Cultivate.