For many young workers, it can seem like after rent, living
expenses, student-loan or credit-card payments and incidentals, there’s little
left over from their monthly take-home pay, making it difficult to establish
and execute a savings plan. So how’s a 20-something to save? Here are some
strategies for socking away cash on a tight budget:
Set goals. If
you’re not sure where to start, begin tracking your spending. You might be
surprised to see where your dollars are actually going.
When budgeting, keep in mind the 50-20-30 rule. 50% of your
budget should go to fixed costs like rent, utilities and car payments; 20%
toward financial goals like building an emergency fund, paying down credit-card
debt and saving for retirement; and 30% toward flexible spending, i.e.,
variable costs such as groceries, entertainment or shopping.
Within the 20% for financial goals, prioritize setting aside
at least one month’s net income in a separate savings account for emergencies
like unforeseen medical expenses or the loss of your job. Next, work on paying
down so-called “bad debt,” like high-interest credit-card debt, financial
Then, focus on
retirement. If your employer offers a 401(k) or similar
retirement-savings plan, be sure to take advantage of it by contributing.
Ideally, you’d contribute enough to receive the company match, if one is
offered, she says. But if that amount seems too steep at the moment, don’t
wait—starting to save a little now is better than waiting.
And if your employer doesn’t offer a plan, consider opening
a Roth individual retirement account—to which you contribute after-tax
dollars—which will allow your contributions to grow tax-free until retirement.
Once you’ve set savings priorities, it’s time to execute—and automation is your
friend. Set up your direct deposit so that a fixed amount goes directly from
your paycheck into your retirement or savings account without ever hitting your
checking account. That way, you’re paying yourself first, and you won’t be
tempted to touch those funds.
Another option: Set up an automated recurring transfer from
checking account to savings account (but not the other way around).
about all the various subscriptions you have to magazines and entertainment
sites like Netflix, Hulu and Spotify—or even cable. Do you really use all
Make a commitment to canceling at least two of your
subscriptions. Each might only be a few dollars a month, but having a handful
can add up quickly. And think of your decision as a trade-off for better
financial health, rather than a sacrifice.
Know when to say no. Being
social often involves eating and drinking—and if you’re doing that often, it
adds up. Plan out your social calendar for the month, budgeting for events
important to you, like drinks with colleagues or a friend’s birthday dinner. Then,
when spontaneous events do arise, you can make active decisions about whether
you should say yes to something that’s not already on that calendar.
Cash only. If
you tend to overspend with your credit card, put yourself on an “all-cash” diet.
Put away the credit card and carry with you in cash only what your budget
allows, she says. That way, if you run out of cash, your spending spree is over
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