Budgeting in Your 20s! Because Life’s Too Short to Be Broke

Being in your twenties can be a super exciting period filled with opportunities for personal growth, adventure, and laying the groundwork for your future. Whether you just graduated, are beginning your career, or are figuring out what you want in life, it's super important to develop good financial habits during this time. Budgeting now can help you manage your money better, steer clear of debt, and accumulate wealth as the years go by.

Before beginning the journey, it’s important to know exactly what is going in and out of your bank account each month. 

If you have a regular job, your paycheck will probably be your main source of income. But if you do freelance work or have different ways of making money, make sure to consider all of them so you can see exactly how much you’re earning each month. 

The 50/30/20 method is undoubtedly one of the most popular strategies when it comes to budgeting. This can aid in managing your personal finances which are split up into three categories: needs, wants, and savings/debt. 

Image Courtesy: Eden Ashley/ mintnotion.com

Half of your income goes towards "needs," which are the necessary expenses you have to pay to keep up your basic way of living. 

Examples of this include basic living expenses, like rent or mortgage payments, and groceries. You can save money on groceries by choosing simple items instead of fancy or convenient foods. Additionally, having insurance—whether it’s health, car, renters, or homeowners insurance, is essential because it shields you from big financial risks and guarantees you can get healthcare or other important services.

Some say that it’s easier said than done when it comes to budgeting, but making sacrifices is key. Housing is a huge need, and whether it’s paying rent or mortgage, it’d be wise to choose a small place, get some roommates, relocate to a more affordable neighborhood, or even consider “house hacking" by renting out a section of your home if you have one. 

Transportation costs can be pricey too. Car expenses like payments, insurance, gas, and maintenance can pile up. There are other affordable options such as using public transportation, biking, carpooling, or even living without a car, if possible, in your area. If you do need a car, try to find a dependable used one instead of buying new, or leasing.  

Dining out more than eating at home can completely drain your bank account. It's wise to make time to get groceries and ensure you're shopping at affordable locations. Some low-cost grocery stores include Aldis, Trader Joe’s, Walmart, and Dollar stores. 

The following 30% is for your “wants," which usually include optional spending such as restaurants, hobbies, travel, and entertainment. These are things that improve your quality of life but aren't essential for your day-to-day survival.

Us when we budget correctly:

Image Courtesy: The CW

Refrain from eating out often, and when you do, stay within your budget. Eating out can be occasional treats, weekend brunches, or a night out at a nice restaurant. 

Engaging in hobbies like shopping, workout classes, and creating art can be possible, even on a budget. You can have fun while keeping your spending in check. 

Whether you're planning a short weekend getaway or a long vacation, travel costs can be managed by saving up ahead of time for trips or looking for cheaper travel options, like low-cost airlines, excursions, and hotels and vacation rentals. 

Entertainment covers streaming services, movies, concerts, and social gatherings. To keep your spending in check, it’s best to think about sticking to a few streaming services and being mindful of when you renew your subscriptions.

Lastly, the remaining 20% goes towards savings and paying off any debt. This can involve setting up an emergency fund, putting money into retirement accounts, or making extra payments on loans to help pay off debt more quickly. Debt can be scary and just downright stressful, but when planning and managing your funds responsibly, you can get rid of them promptly and efficiently. 

There are two well-known strategies for tackling debt: the avalanche and snowball methods. The avalanche method prioritizes paying off debts with the highest interest rates first, which helps reduce the overall interest you’ll end up paying. On the other hand, the snowball method suggests starting with the smaller debts, allowing you to feel a sense of accomplishment as you eliminate those balances quickly.

It’s also always best to have an emergency fund. In the case you run into financial trouble, you have a safety net. It's best to save enough money to cover three to six months of your living costs. You can begin with a manageable goal, like saving $1,000, and then slowly work your way up to a larger amount for more financial safety.

A savings account to invest in when it comes to emergency funds or even just saving in general is a high-yield savings account (HYSA). This specific account gives you a way better interest rate than a regular savings account, which helps your money increase more quickly. While a standard bank savings account might only offer a super low interest rate (like 0.01%), a high-yield savings account usually provides rates of about 3% or higher. This means you can make more money by leaving your cash in the account.

For example, if you have $1,000 in a standard savings account that offers 0.01% interest, then after one year, you would only make $0.10 in interest, resulting in a total of $1,000.10. However, if you place that same $1,000 in a high-yield savings account with a 3% interest rate, you could earn around $30 in a year, increasing your total to $1,030.

Retirement accounts are also best for the 20% you’d be spending. Putting money into an employer-sponsored retirement plan, such as a 401(k), is a smart move, especially if your employer matches your contributions. 

 If you don’t have an employer plan, think about starting an individual retirement account (IRA) and making regular contributions. Thanks to compound interest, your retirement savings can increase over time, which makes starting early even more beneficial. 

In your twenties, developing good financial habits is crucial for achieving success later on. Using the 50/30/20 budgeting rule can help you manage your necessary expenses, have fun, and save for what’s ahead. Making smart decisions, such as cutting back on grocery costs, reducing unnecessary spending, and putting money into a high-yield savings account or retirement plan, creates a solid base for your financial well-being. Taking small actions now, like reducing debt and creating an emergency fund, will benefit you down the line. By being smart with your money, you’re not only ensuring your financial stability but also investing in your future. 

Strike Out,

Jessica Harris 

Boca Raton

Jessica Harris is a Content Writer for Strike Magazine Boca. As a proud introvert, she is described to be quiet but always up for challenges to get her out of her shell.  When not overworking herself with school and work, she’s nose deep in a book on her balcony, sobbing over Kdramas or constantly writing in hopes to publish a book. You can reach her at jessicaharris777@gmail.com.