5 Ways to start saving for retirement in your 20s

Why start thinking about retirement so far in advance? The simplest, greatest, and most attractive reason is that the sooner we begin, the more we will have. Apart from that, it can teach you an important lesson: That you can start financial planning anytime, anywhere, regardless of your present living circumstances. So how to begin?

1. The Need for Budgeting

Nations, states, cities, and businesses all have budgets… Why not individuals? Many have a strange reluctance or stigma against budgeting for themselves, like it’s an activity reserved for “those boring people.” On the contrary, the sooner you start getting control of your finances and developing the habit of budgeting in your 20s, the more it will pay off in your 30s, 40s, and beyond.

• It’s segmented into relevant categories, such as money for emergencies, monthly necessities, long-term plans, etc.
• You “pay yourself first” with whatever money you receive, making sure to allocate funds to your savings goals before sending them to bills
• You diligently track spending and income, monitoring where you’re overspending or can afford a little leeway.

Budgeting in your 20s is an excellent way to start yourself down the road to financial security

2. Start Paying Off Debt—It’s As Good As Saving

Your current debt levels should undoubtedly play an important role in your budgeting. Accumulated credit card or student loan debt can weigh down your finances on a month-to-month basis, leeching income away from everything else your money could ideally be put toward—such as savings. Too much debt can also negatively impact your credit rating, potentially preventing you from qualifying for important loans when the time comes.

Start tackling your debt early and often to prevent that from happening. Apart from the general counsel to live within your means, remember that every dollar put toward your debt is the equivalent of money saved. You’ll be lowering the monthly interest payments as you pay that debt down.

3. Use Your 20s to Your Advantage

You can afford to sleep just a little less in your 20s. That is, you can afford to take a side hustle or explore interesting or unusual side jobs that you might not have energy for when you’re older with a mortgage or family. It’s a good time of life to start laying down the groundwork for your financial future, even if it means living in suboptimal conditions just to save money on housing.

The idea here is to start building a nest egg early. When it comes to putting away money for savings or retirement, it isn’t so much about quantity as it is about consistency over time. A little every day, every week, grows exponentially with time, and starting in your 20s gives you at minimum an entire decade head start over others who start later in life.

4. Increase Savings As You Earn More

Your retirement savings should reflect a certain percentage of your overall income. Whether you make $1,000 per month or five times that, figure out a comfortable percentage (10 to 20%) to start laying aside in an account you do not touch. If 5% is all you can afford, save 5%, but start saving something so that your wealth, no matter how incrementally, grows with time.

This number should gradually increase as you make more money. Think about where you want to be in 10 years, in 30 years, and then start laying aside money toward that definitive goal. Having a goal in mind, something specific to “shoot for,” is one of the most important steps in the process.

5. Don’t Simply Rely On Bank Savings Accounts

Although we’re talking about saving your money for retirement, that doesn’t necessarily mean putting it all into a savings account. The interest rates banks may not be exactly compelling, and it may not even be enough to keep up with inflation, meaning you could actually be losing money by keeping it in there.

Instead, start thinking about building an investment portfolio. Part of your money can certainly go into a 401(k) or an individual retirement account (IRA), but don’t neglect the possibility of investing in stocks and look for more impactful growth over a period of time. While you should by no means throw your money around into high-risk stocks, the greater tolerance for market setbacks in your 20s makes it a great time of life to learn the “ins and outs” of investing.

Tempting as it may be to use your 20s to “get it all out of your system,” there’s nothing stopping you from stepping up your financial planning game as early as possible. Even without a stable income, even without a high-paying career, you can already start setting money aside to save, avoid debt, and learn how to invest responsibly. More than that, the habits of mind and organizational tools you gain when you’re young can only become more and more helpful as you get older.