The Ultimate Guide to Saving Money for Young Adults

guide to saving money for young adults

We created this guide to saving money for young adults, as this skill is crucial to financial planning. As young people transition into adulthood and start building their careers, they face unique financial challenges and responsibilities. While it can be difficult to balance living expenses and save for the future, young adults need to start building a solid financial foundation.

This guide will explore young adults’ challenges when saving money and offer practical tips and advice for overcoming these obstacles and achieving their financial goals.

Why Should You Start Saving Money as a Young Adult?

As a young adult, you probably have already experienced one or more rainy days. Yes. Young adults are almost notorious for having poor financial habits. Of course, you can’t say this of everyone, as some people are naturally good with finances while others are not.

Still, Pew Research finds a decline in financial independence among young adults. A recent analysis of Census Bureau data by Pew Research Center found that the share of young adults who are considered financially independent by their early 20s decreased from 32% in 1980 to only 24% in 2018.

For several reasons, saving money is an essential habit for young adults. One of the main reasons is to ensure financial stability in the future. A savings cushion can help protect against unexpected expenses, such as medical bills or car repairs, which can be especially important for those just starting out in their careers. Having an emergency fund can also help reduce financial stress and provide peace of mind.

Another reason to save money is to prepare for the future. As a young adult, you may have long-term financial goals such as buying a home, starting a family, or saving for retirement. You can work towards these goals and build a strong financial foundation by saving money consistently.

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In addition, saving money can help you avoid debt. High-interest debt, such as credit card balances or personal loans, can be challenging to pay off and significantly impact your finances. By saving money regularly, you can reduce your reliance on debt and make more informed decisions about when and how to borrow money.

Finally, saving money can also help you build good financial habits and create a sense of financial security. Knowing that you have a savings cushion can give you the confidence to make critical financial decisions and feel more secure in your financial future.

Saving money is an important aspect of financial planning for young adults. It can help protect against unexpected expenses, prepare for the future, avoid debt, and build good financial habits. By developing a savings habit, young adults can take control of their finances and build a solid financial foundation for the future.

Below Are 8 Tips to Help Young Adults Start Saving:

Saving money is an important aspect of financial planning, especially for young adults. Here’s a guide to help you get started:

Make a budget:

Start by tracking your income and expenses to get a clear picture of where your money is going. Use this information to create a budget that prioritizes spending on necessities and allows for some discretionary spending.

Reduce unnecessary expenses:

Look for ways to cut back on expenses that aren’t essential. This can include eating out less, canceling subscription subscriptions you don’t use, and finding cheaper alternatives for recurring expenses.

Start an emergency fund:

An emergency fund is a savings account set aside for unexpected expenses, like car repairs or medical bills. Aim to have at least three to six months’ worth of living expenses saved up in case of an emergency.

Take advantage of employer benefits:

Many employers offer benefits like 401(k) matching, which can be a great way to save for retirement. If your employer offers a matching program, make sure to take advantage of it.

Automate your savings:

Consider setting up automatic monthly transfers from your checking account to your savings account. This makes it easier to save without having to think about it.

Invest in your future:

Consider investing in stocks, mutual funds, or a retirement account to help your money grow over time. Start small and gradually increase your contributions as your income increases.

Avoid debt:

Avoid taking on high-interest debt, like credit card balances or personal loans. If you do need to borrow money, look for low-interest options like a personal loan from a bank or credit union.

Be mindful of your spending:

Be aware of your spending habits and make deliberate decisions about where you’re putting your money. This can help you avoid impulse purchases and stay on track with your budget and savings goals.

Saving money takes time and effort, but it’s a valuable investment in your financial future. By following these steps, you can develop a healthy savings habits and build a strong financial foundation.

Get an Accountability Partner

While learning to save is something I believe everyone should be able to do themselves, some people have difficulty getting started, especially as young adults. If you struggle with savings, make a commitment to save, and get someone to hold you accountable for your goals. Your accountability partner could be a parent, a friend, significant other, or anyone who can hold you responsible for putting away a certain amount every month.

Challenges Young Adults Run into When Trying to Save Money

Young adults face several challenges when trying to save money, including:

Living expenses:

Young adults often have high living expenses, such as rent, utilities, and student loan payments, making saving money difficult.

Low income:

Many young adults are just starting out in their careers and may not have a high income, making saving a significant amount of money challenging.

Lifestyle inflation:

As young adults start to earn more money, they may also start to spend more, making it difficult to increase their savings.

Unforeseen expenses:

Unexpected expenses, such as car repairs or medical bills, can quickly drain a young adult’s savings account.

Debt:

saving money for young adults

High-interest debt, such as credit card balances or personal loans, can make it difficult for young adults to save money and may also increase their monthly expenses.

Lack of financial knowledge:

Many young adults may not clearly understand budgeting, saving, and investing, making it difficult to make informed financial decisions. A significant number will not take advantage of grants or other monetary resources that are available to them due to a lack of such knowledge.

The temptation to spend:

With the prevalence of online shopping and instant gratification, it can be tempting for young adults to spend money on non-essential items.

Peers and social pressure:

Young adults may feel pressure from their peers to spend money on experiences and material goods, making it difficult to stick to a budget and save money.

Despite these challenges, it is still possible for young adults to save money and achieve their financial goals. Young adults can work towards a strong financial future by developing a budget, reducing unnecessary expenses, and automating their savings.

When Should Young Adults Start Saving Money?

Young adults should start saving money as soon as possible. The earlier they start, the more time they have to allow their savings to grow, making reaching their long-term financial goals easier. Additionally, starting to save money early can help establish good financial habits and provide a sense of financial security.

Even if they are just starting out in their careers and earning a low income, young adults can still benefit from saving what they can. Setting aside a small amount of money each month can help build a savings cushion and prepare for unexpected expenses.

For young adults with high-interest debt, such as credit card balances or personal loans, it may make sense to focus on paying off this debt first. However, saving a small amount of money each month is still important to build an emergency fund and start preparing for the future.

There is no “perfect” time to start saving money, but the earlier young adults start, the more time they have to reach their financial goals and build a strong financial foundation. By making saving a priority and incorporating it into their budget, young adults can take control of their finances and secure a bright financial future.

Where Should You Be Saving Your Money?

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Where young adults choose to save their money will depend on their financial goals, risk tolerance, and time horizon. It is important for young adults to consider all their options and find a savings solution that works best for them. By saving money regularly and making it a priority, young adults can take control of their finances and build a strong financial foundation for the future.

Young adults have several options when it comes to where to save their money, including:

  • Emergency fund: An emergency fund is a savings account that is set aside for unexpected expenses, such as car repairs or medical bills. It is recommended that young adults have enough money saved in their emergency fund to cover three to six months of living expenses. An emergency fund can help reduce financial stress and provide peace of mind.
  • High-yield savings account: A high-yield savings account is a type of savings account that offers a higher interest rate than a traditional savings account. This type of account is a good option for young adults who want to save money and earn a little interest on their savings.
  • Retirement accounts: Retirement accounts, such as a 401(k) or an IRA, can help young adults save for their future and take advantage of tax benefits. Contributing to a retirement account early in their career can help young adults take advantage of the power of compound interest and reach their retirement goals.
  • Investment accounts: Young adults who have a longer time horizon and are comfortable with taking on more risk may want to consider investing some of their savings in stocks, bonds, or mutual funds. Investment accounts, such as brokerage accounts, can provide the potential for higher returns over the long term.

A Few Final Words

In conclusion, saving money is an important aspect of financial planning for young adults. By understanding their challenges and developing a budget, young adults can prioritize saving and build a strong financial foundation. Whether they choose to save in an emergency fund, a high-yield savings account, a retirement account, or an investment account, the most important thing is to start saving as soon as possible and make it a consistent part of their financial routine. With discipline, determination, and a focus on their financial goals, young adults can take control of their finances and secure a bright financial future.

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Christine Udeani, JD
Christine Udeani, JD

Christine is a dedicated mother of six young adults and a teenager who has made significant contributions to the online world through her writing and entrepreneurship. She attended Northwestern University, Strayer University, Thomas M Cooley School of Law, NWCULAW, and holds degrees in business, Law, and Communications. She shares tips and experiences to help young adults and their parents with this generation’s issues.

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