Saving in your 20s can be a tough habit to get into. We’re just starting to settle into our careers and it can seem like between getting settled in life and having some fun along the way, little is left over for saving. Getting into the savings game is easier if we build it around specific objectives that fit into our life goals.
If you’re looking to up the number in your savings account but don’t know where to start, we’re here to point you in the right direction. The first step: Breaking your savings down into categories to make it easier to know what exactly you’re saving for (and to be prepared for it all). These are the places you should allocate your money when you’re in your 20s.
1. Future You
First and foremost, you should be saving for future you, and a good chunk of that savings should go to the long-term version of yourself. If your job has a 401k or any other type of retirement savings plan, getting invested should be a priority. Saving for retirement early in our careers lets the time value of money do it’s thing for longer, meaning that even small dollars add up over time! Don’t have a 401(k)? You should be exploring other options, like IRA’s and other investment vehicles, if you’re self-employed or your employer doesn’t offer these options.
2. Skill Top-Offs
In our 20s, we might start to find that the college degree or other education experience we marched through isn’t always everything we need to get the day job done. It’s a competitive job market, and a few additional skills can make a big difference in getting the opportunities we want. For example, if you’re in marketing and already have a business degree, consider adding an industry certification to your resume. Or, think about adding a smaller technical certificate to your skill set to round out all those creative juices.
While you always want to approach your employer first in helping you pay for some of these things, it’s nice to have some funding stashed away to do it yourself, especially if you’re looking to switch jobs.
It’s important to have a small emergency fund that can help you cope if something unexpected sneaks up in life, but it’s OK to not go nuts here.
Savings rates are relatively low right now, so if you have other debt like credit cards, or even student loans at higher rates, consider getting more aggressive in paying those down. This is especially true if you’ve got a good base in your emergency savings of a few months of living expenses.
Remember those? We definitely all have fulfilling hobbies, and they’re worth putting away some money for to round out our lives and make us whole people. Further, dedicating some money to this aspect of our lives makes us more committed to exploring those interests. Even in very small dollars, money dedicated to your museum fund, knitting supplies, or cooking classes is money well-saved.
5. A Home
Just like saving for retirement, small dollars over time add up. If saving for a home is on your bucket list, plan on needing to set aside around 20 percent of your likely purchase price for your down payment. Settling into a new house can also come with a number of other expenses, and you’ll likely want a little cushion for the fun stuff—furniture, decorations, and unexpected repairs or customizations.
6. A Family
Saving for a future family is another goal to start thinking about in your 20s. A Nerdwallet study found that the annual cost of raising a baby in its first year is around $21,000, and supporting a child through age 17 can pass $200,000. You might also find that moving into that stage of life requires rethinking housing, work, and other lifestyle considerations. Reviewing those aspects for yourself or with a partner are important. Kids not in the cards? I’m exploring educational savings options like 529 plans for the other littles in my life I want to give to.
In my 20s, I did not turn down a trip. Vegas for the weekend? Sounds perfect. Quick train ride down the coast to visit a friend in D.C.? Count me in. These. add. up. I got in the bad habit of tossing these travels on a credit card, and it became one of the biggest spending reflexes I had to change to get my finances in order. Between friends getting married, life changes, and our own relocations, travel adds up in our 20s. Starting a fund dedicated to trip planning and thinking about our travel plans over the entire year is an important habit to start to save around.