Money is what makes the world go round. We work to earn money and make a living to spend that money to make us happy. “Money can’t buy happiness” is a saying people use too often.
In reality, money can probably fix many problems one faces in adulthood. People recognize this and are constantly trying to save money in whichever way they can.
However, most people often have no idea how much money they need to reach their savings goals. They’re not aware they should have an emergency fund and how often that emergency fund will be their saving grace.
This lack of awareness exists because people seldom talk about their own money.
Personal finance is an important skill to cultivate in current times, and there are many rules for saving money and investing your current money for gains in the future.
The younger you are, the more successful your efforts for saving money can be. Younger people have fewer responsibilities and children to care for.
This freedom from responsibilities means a significant portion of your monthly earnings can go into savings for the future.
You can employ certain strategies and tactics to make sure you can enjoy your time now and even in the future. You’re never too young to start investing. The sooner you invest, the sooner you can enjoy the stability that it brings.
Importance of saving money at a young age
According to the Heritage Bank, one in five young adults takes their parents’ help in making rental payments while others move back home to save money on a house deposit. The economy isn’t great for young adults, and saving becomes increasingly difficult when you factor in rent and common house utilities.
However, saving money is important at a young age. Life is unpredictable, and you would want to have money when life throws you down. Most young people squander money because they’re meeting their needs. However, you must understand that the world doesn’t always operate linearly. You could lose your high-paying job, or some medical emergency might come up, and it is here that your savings come in to save you.
As mentioned before, savings are easier to make at a young age due to limited responsibilities. There’s no catering to kids or taking care of any other person’s needs for most young adults. Another perk of saving money at a young age is that you can provide for your family easily when you decide to have one, and this is just a great burden off your back when the time comes.
You will be grateful about spending one less weekend partying when you see your savings and the state of your bank account in a few years.
Saving money can teach you a great deal about the value of money at a very young age. It also gives you a great credit score and makes you aware of banking and bank facilities at a very young age. This awareness will undoubtedly set you up with an advantage that other people your age might not have.
Saving at a young age also allows you to make significant decisions about yourself early. It makes you financially responsible. If you have enough savings, you might not have to wait so long to fulfill your dreams.
Savings can help you get a jump start on getting another degree, start your own business, and make decisions like having kids. With savings, a little goes a long way. Once you’ve entered the mindset of saving, it’s difficult to stop, and that’s a mindset that will help you throughout your life.
How to save money at a young age
Now that we’ve established the importance of saving money at a young age, we can talk about the methods you can use to start saving at the earliest. Contrary to what social media will have you believe, there are ways to save and spend money smartly.
Firstly, you need to sort out your priorities. Spending on your morning coffee and going to bars every once a week might not be sponging your income. However, they could be a burden if you overindulge.
It would help if you showed tact about how you’re spending and on what. You also need to distinguish between big-ticket items and small ticket items. Below are some ways mentioned that you could save money in your earlier years.
Extend your college lifestyle
College is generally a time in someone’s life that they’re not doing too great financially, but they still manage to have fun. This lifestyle involves getting creative with the little money that you do have for spending.
This lifestyle doesn’t mean that you don’t spend on yourself now and then, but it greatly limits sprees on your credit card, which you eventually have to repay.
A few years of living like a college student will give you a head start on saving money and get you in the headspace for saving. You’ll get better at distinguishing between needs and wants and making choices accordingly.
Don’t buy a home out the gate
Buying a house is a huge investment, and for the most part, you can do without it for the first couple of years. Most people take it on because it makes sense as the next big move, even if it makes no sense financially. Thus, instead, if you can just rent out an apartment, then that’s the move you should make.
Another way of adding to your savings is to ask your friends to move in as roommates or make new roommates in general. Cities are crawling with young people like you who want to save money on rent, which is one of the easiest ways. If you’re in a relationship, it may also make sense to ask your partner to move in with you, as it saves a lot of money on rent and utilities.
Don’t buy a new car
New cars may seem like a great investment, but your car is essentially unnecessary if you live in a city with a reliable public transportation system. It’s another check in the box of things that young people feel like they need to accomplish. If it’s something that you don’t feel like will bring more function to your life, there’s no need to invest in a new car for now. A new car might also come with a car loan.
Instead, you might opt for an older car that can be bought with one check and has good bones that you can potentially invest in.
Cars are a very big responsibility, and they require money to maintain and to use, and so, if you can avoid them for the first two to three years of your career, it will likely leave you a big pocket of savings that you can dig into later on in life.
A car is a depreciating asset, and its value will likely fall even if it’s in mint condition, which is why it doesn’t make sense to invest in.
Revise your fixed costs
This factor involves budgeting which can be slightly difficult if you’re not used to it. Don’t worry, though; it’s not anyone’s favorite thing to do. It does, however, give you more control over the money that you are spending. It means that you know what your inputs and outputs of money are. You are aware of where you’re regularly spending, and once you identify this, you can decide which investments are worth it and which investments are going to waste.
We can lose track of our spending because much of our payments are made electronically instead of via teller transactions. Be smart and look at your bank statements to identify where you’re spending money and how you can save it.
For budgeting, Boomers and Millenials often find the simplest methods to be the most effective. One of these is the 50/30/20 method which gives people the goal of saving 20% of their monthly salary to enjoy it later on. This method provides a balance between saving and spending without creating too much anxiety or complicating procedures.
This method is mostly for digital transactions, but you can’t forget to pay certain bills with the progress of technology. A correct method would be to automate all your important bills and payments so that you’re not losing money by paying late fees.
This method also automatically introduces structure to your bank account. Once your basic needs are taken care of, you can easily filter out how much you need to save and how much you can spend the remaining money for your happiness.
There are also applications now that let you automate the savings you transfer to your savings account, and thus this leaves even less work for you to do and figure out.
All you need to do is set it up, and you’re good to go. As a young person, you must use the available resources at the moment because your future self will thank you for them. Furthermore, automation saves you a lot of time, effort, and frustration by working things out for you.
Earn more money
It may seem like a cliché thing to say, but the way you save more money is by making more money. If you’re 9-5 is not working out for you, and there are other jobs in the market that pay more, do them. You’re young, and this is the time you need to hustle as it pays off in the future. Many people also make more money by investing in a side business that will sustain them if, perchance, they lose their day job.
Another way of earning more is by establishing yourself in your workplace. If this means that you have to put your foot in the door, then do it. You may not get the opportunities to climb the ladder as often as you get older.
Extreme saving may work for some people, but in others, it just leads to bouts of depression and low self-esteem. Work on understanding what balance works for you and how you can maintain yourself in the present while also establishing a stable footing in the future.
Tips on saving money at a young age
Saving money at any age can be difficult. Here are eight tips that may help you do better:
- Learn to exercise self-control
- Learn to manage your money
- Know where your money goes
- Start an emergency fund
- Start a retirement fund
- Understand your taxes
- Look after yourself and have a healthy diet
- Protect your money and wealth
Benefits of saving at a young age
We’ve established that saving money while you’re young is important and that they’re ways of doing it. But what are the active benefits of saving money in your twenties or when you’re just starting your career? Well, there are plenty, and we’ve listed them below:
1. Compound growth increases the nature of savings in a savings account (compound interest)
Money works in mysterious ways when you know nothing about financial capital and return on investment. Thankfully, you don’t have to know. If you’ve managed to start a savings account, chances are you’re already benefitting from compound growth.
Compound growth is like compound interest in the sense that it gives you greater returns on your investment than the original sum of money you invested.
Furthermore, using compound interest is a smart way of saving. Putting money in a savings account means you’re actively investing it whereas, stowing this money away in a box somewhere is just causing it to depreciate.
2. You can resist unexpected market changes
The market changes all the time, and sometimes it may change for the worst. If you start saving early on, you can essentially recover from the changing market because you have enough time to weather the changes and recover the lost money.
If you start investing later on when retirement is looming and rearing its ugly head, things might get extremely stressful for you.
On top of that, the market might not be favorable if you want to invest in savings for other avenues like your house mortgage or your children’s marriage.
Moreover, it is better that you invest in small amounts over longer periods, which you can easily do when you’re young. It’s pretty much perfect for investing at this age.
3. Preparation saves lives
You might not feel it right now. But life comes and goes by fast, and you need money to deal with how unpredictable life is. Things can change in a minute, and it helps to adapt to these changes financially. There might be a medical emergency, or you might live your life and one day decide that the career you’re entangled in is not the right choice for you.
Having financial planning means you can leave situations that no longer benefit you and look for happiness elsewhere. You don’t just prepare by saving money but taking out insurance policies, signing pre-nuptial agreements, etc., are all ways of safeguarding your financial future, and you should be aware of these.
4. You’re setting a good example
You might want to start a family when you’re in your 20s and 30s, and at this point, your responsibilities increase. By exercising good financial decisions, not only are you securing your children and family’s future, but you’re also setting an example for them. They’re more likely to be aware of their choices, and the quality of their lives will be better than even yours was. A bright and secure present and future are what most parents want for their children, and financial security gives you and them one less thing to worry about.
5. You’ll be more than ready for retirement
Retirement is not an individual’s journey. Retirement money is a way of you taking care of yourself and the people around you when you have no income. If you’ve saved up well enough, you won’t be a burden on anyone else.
You’ll be able to enjoy your retired life and spend it with the people you love in peace. You can even help the people around you with their dreams if you retire with enough money. Thus, there won’t be fear of retirement or not being a part of the financial machine, and you’ll finally get to relax.
There are many benefits of saving money at a young age, but it is imperative to understand how you can save money before you can reap those benefits. It requires an active choice to look into your financials and carve out a path towards the financial future you want to have.
You also need to understand that saving is not an action; it’s a mindset and that you must adopt it as soon as possible so you can start benefitting from it. It is detrimental to the quality of your life if you remain oblivious to the benefits of saving money at a young age, so now is the time to start saving!