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How To Save Money In Your 20s, According To My Finance Major Parents

Over the years, I’ve been given a handful of useful advice from my parents about saving money — both of them were finance majors in college and pursued finance-related careers, and what am I? A 21-year-old English major who has never taken a personal finance class (I know, I’m such a disappointment). 

Saving money in your 20s can be daunting, and especially in college. Student loans, paying rent for your apartment, buying groceries… The expenses in college and even post-grad add up, especially if you are unemployed (which many of us are). Gen Z is also predicted to have a difficult time making money, as many members of our generation are becoming adults amid a pandemic that has negatively impacted the workforce and overall economy. Researchers have assessed that this will likely have the same negative effect on us as it did for millenials after the Great Recession from 2007 to 2009. Financially, our future looks a bit bleak.

But there is hope! I sat down with my parents, two of the smartest people I know (and especially when it comes to finance), and asked them for their financial advice. Here are their tips for saving money in your 20s.

Create a budget, and hold yourself accountable to stick to it

“Don’t live beyond your means. Create a budget to track where you are spending money and where you might be able to curb your expenses (e.g., seven Starbucks runs a week, or expensive smoothies or juice presses or whatever),” my dad told me (he was definitely exposing me, but that’s fine LOL). “You need to get to a place where you are hopefully earning more than you are spending.”

Even though budgeting may seem overwhelming, it actually doesn’t have to be so daunting, and especially in this technological age. “There are apps, websites, and software that can help you. It’s important to set goals for spending, saving, and investing and to see where your money actually goes,” my mom said.

Get a credit card, but be mindful of your spending and borrowing habits

Apply for a credit card so you can build a good credit history. It can be hard for teens and young adults to get approved for a card, but your bank may be willing to offer you a credit card with a small credit line. Or, if you can’t get one on your own, you can have a parent co-sign,” my mom told me. “Avoid credit card debt by paying your balance in full each month since credit card interest rates tend to be very high. Another good tip is to use a credit card that pays rewards so that you can earn money on your purchases.”

My dad also urged caution about borrowing money. “Don’t borrow on your credit cards — the high interest rates will bury you. But if you do have debt, pay off any student loans or credit cards as soon as you can and likely before considering beginning to invest.”

Once you have a job, start saving as much as you can

“Start saving and investing early and regularly because compound interest and reinvesting your dividends can really make a difference,” my mom explained. “Compound interest is like interest on interest. Make it a habit to set aside even a small amount from each paycheck, if you can.”

My dad also stressed the importance of retirement savings plans. “Contribute to [a retirement savings] plan as soon as you can, even if it’s only a little. If your company offers a match (they match what you contribute dollar for dollar usually up to some percentage, like 5 to 6% of your income), you should contribute up to the match if you can afford [it], as it’s like free extra compensation.”

Take a personal finance class

For college students like me who hate math, taking a personal finance class may not sound all that appealing — but it is important if you want to learn how to save money. If you don’t have room in your class schedule for it, though, at least make an effort to educate yourself. Personal financial literacy is infamously low among college students; in fact, in a 2018 survey of over 100,000 incoming college students conducted by EverFi, most college students struggled to answer simple financial literacy questions, and on average, students only answered a third of the questions correctly.

“Learn the language of investing so that you can make smart financial decisions and avoid being taken advantage of by unscrupulous people,” my mom told me. “Unfortunately, many high schools don’t teach basic financial literacy. It’s important to know what stocks and bonds are and the basics of how interest rates and loan payments work.”

Don’t be afraid to invest in the stock market

For many twentysomethings (myself included), the stock market can seem intimidating; where do you even start? However, both my parents advised to start investing in the stock market in your 20s, if you can.

“Don’t be afraid to invest in the stock market when you are young since you will have time to recover if the market takes a downturn,” my mom told me. “You don’t need to know how to pick individual stocks; mutual funds are an easy way to diversify your portfolio and take advantage of professional advice. There are many mutual funds that mirror the stock market as a whole, so these can be good options. Of course, if there’s a particular company you really like — for instance, that cruelty-free, vegan cosmetics company whose products you love — it can be fun to buy a few shares!” 

My dad also agreed with my mom. “If you have a passion for investing and the stock markets, I would recommend only dabbling in small investments which are increasingly easy to do through services and companies like Schwab Stock Slices, Robinhood, or Acorns, to name a few.” (Full disclosure: My dad works for Charles Schwab but receives no compensation or benefit for this suggestion.) 

Set short-term and long-term financial goals

Having both short-term and long-term financial goals can help you decide how to divvy up your spending and saving habits. Short-term goals could be, “I want to be able to afford going out to eat at least once a week,” or “I need to save up X amount of money to go on this vacation in a few months.” On the other hand, long-term goals could be, “I want to retire when I’m 60 years old,” or “When I buy a house, I want to be able to pay off my mortgage in at least X amount of years.”

“Ultimately, think about what it will take for you to feel truly financially independent and secure,” my dad said. 

Fortunately, although saving money in your 20s can be scary, it isn’t impossible. Now BRB, I’m registering for a personal finance class right now (sorry it took me this long, Mom and Dad). 

Zoë is a summer 2021 editorial intern at Her Campus and a rising senior at Loyola Marymount University where she studies English and public relations. In her free time, Zoë can be found taking photos, reading, and going to cute (but overpriced) coffee shops.
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