Knowing how to save money from a young age can set you up for a life of incredible experiences. It can take away the financial stress that many people experience in their 20s, 30s and even 40s. It can let you take opportunities that others might not be able to afford. You will also have a mega FU fund if you get to a point in your career where you feel stressed and burned out. Saving money young can set you well on your way to passive income and financial freedom later in life. Sooner than you might think!
You might be thinking that you need to give up having fun in your 20s or 30s to be able to save money. At the end of the day, nobody wants to be a miserable scourge. You don’t want to be tied down to a restrictive tedious but spending all your time working out where your money has gone at the end of the week.
Let me be clear, you don’t have to give up all the things you enjoy. You can still build heaps of crazy memories whilst saving money. If anything, knowing how to save money from a young age is going to give you more freedom to do just that. It all starts with building simple money habits as early as possible in your financial life.
#1 Build Up Your Cash Savings
Build three to six months living expenses as soon as you can start working. All money management starts with this first step. You’ll be hard pushed to find a money management blog that doesn’t tell you to build an emergency fund. I know people in their 30s and 40s that still live pay-check to pay-check. One particular colleague is deep into crypto but is still deep in credit card debt.
You wouldn’t try to build a house without a foundation and it’s the same with money. By putting the time in when you’re young it means you don’t have to do it later in life. If you skip this step and try to invest in stocks and cryptocurrency, you do it at your peril. When you are young it’s in some ways far easier to build up your savings. Although you might not have the best income you are also more likely to have fewer commitments. This allows you to start your financial career with a mentality of ring-fencing savings.
- Work out your income after expenses.
- Apply the 80/20 rule of budgeting to save 20% of your income.
- Set up a direct debit to move this 20% the day after pay-day.
- Move this money into a separate savings account that you can forget about.
- Should you have extra money left over at the end of the month then increase the 20%.
#2 Leverage & Grow In-Demand Skills
The evidence shows there are degrees with a high return on investment. Taking a certain type of degree can increase your earnings 5 years after graduation and beyond. For example, an economics degree (not surprisingly) commands a higher average salary 5 years after graduation than a psychology degree.
Whilst there is a balance between following your interests and passions, it’s good to consider the potential financial impact. However, whilst my psychology degree is ranked quite low, it gave me a variety of skills, including research, data and statistical analysis. These actually helped me get into the job market. I loved what I studied and would never change my experience.
This theme is a constant throughout the job market. For example, Linked in published a list of the most in demand hard and soft skills of 2020. The reason I refer to this 2020 list is because it contains both hard and soft skills which are important to recognise such as emotional intelligence. Often when you interview for roles you’ll be asked about times when you collaborated, resolved conflict or persuaded management. Not every in-demand skill requires you to learn a new coding language.
However, aligning yourself with tangible key skills will help you stay in demand of a higher salary. There are also various lists of jobs that are most in demand, so putting yourself on a trajectory for those can also have a positive financial impact. The high profile lists from the likes of business insider all seem to contain artificial intelligence, machine learning and Robotics. Which can be a little dissuading. You can check out the coverage of Upwork’s recent report. Indeed also have a report of diverse skills and a detailed list of in demand skills and related jobs.
#3 Change Jobs Frequently
The fastest way to not only upskill but grow your salary is to job hop. In my experience, waiting for opportunities to develop hard skills and be granted access to new software never arrives. It’s far quicker to land jobs where that’s a core feature of the role. Millennials will have 15-20 jobs in their lifetime and perhaps it will be even more if you are GenZ. You should not feel guilty for abandoning your current employer at a moments notice. Don’t be fooled into thinking you’ll be rewarded for your loyalty. The evidence suggests that staying in the same job for longer than two years can cost you 50% in salary.
Job hopping is not going to make you look like a bad candidate either. You might worry that if you’re jumping ship every 2 years then employers might think you’re not worth the investment. However, job hopping is also now not necessarily seen as negative by employers. There are a number of positive factors that potential employers see in these types of candidates. In fact, reputable sources even suggest that successful people change jobs more frequency. This is likely experiencing multiple roles and companies helps you build up critical skills. It results in you being adaptable.
#4 Create & Stack Your Money Habits
The common pitfall to earning more is that you also tend to spend more! Those novel and exciting purchases you make with your first few pay-checks become routine. They start to stack up and turn your monthly balance sour. Whilst they won’t bring you the same dopamine kick they first did they’ll still continue to be a drag on your money. Ultimately we want to buy things we value not avoid routine expenses that don’t.
Knowing how to save money from a young age is all about consolidating your money habits. Once you learn to stack one money habit on top of the other they start to compound. For example, once you conquer paying yourself first every month you can start to think about the next habit. Often this is the keystone habits that leads to even more positive money habits. It’s similar to how exercising regularly seems to make processed or unhealthy food less appetising. You also might also find that if you get up in the mornings and exercise you drink more water and less caffeine throughout the day.
How To Keep Track Of Your Money
Tracking your expenses using a quick and easy to use app is one behavioural change that’s going to benefit you. There are some awesome apps that help you to manage your money such as Snoop. Opening the app once a day or once a week is going to focus your attention to the money habits you need to cut (e.g. subscriptions you don’t use). This money habit is not about restricting your spending but bringing it to a conscious level. All you are doing is building a feedback loop with how you save and spend. The most powerful money habits that have compounded for me are:
- Track my net worth with an excel template.
- Updating my reverse budget every time I get a pay rise.
- Tracking my expenses with a money app such as Snoop Or Cleo an AI chatbot budgeting app.
Please note: this is not financial advice you are responsible for your own financial decisions. When Investing Capital Is At Risk.
Andrew | Mr Money Side UP
#5 Invest Early & Often
The majority of people spend their lives being scared of the stock market or any asset where there is a degree of risk. As a result they avoid any possibility of building wealth and this actually costs them a fortune. This is because buying assets is how you build wealth and passive income. It’s how you secure your financial future.
The first step with investing is the most important but also the hardest. It’s a massive psychology barrier that you need to break. Start learning how to grow your money as soon as possible. Learn the basics of how to invest and start to build an investment strategy. Your strategy doesn’t need to be perfect and you can start with small monthly investments each month. Learn the basics of low cost online investing, learn about index funds or jump straight into the 8 funds that make my shortlist.
Investing early is key in terms of time in the market and gaining the benefits of compound interest. For example, someone who starts investing £100 at a 7% annual return from the age of 25 would have £250,000 by age 65. By contrast someone who delays this by 10 years and starts at age 35 could cut their fortune to £118,000. By simply starting to invest at a young age, they would put in just £12,000 more. However, they end up with a portfolio of £132,000 extra because of the power of compound interest. Use my financial freedom calculator to calculate your own trajectory to financial independence.
In Conclusion…
The trick to save money from a young age is all about starting to build consistent money habits. It’s not about the big wins it’s hacking your own money psychology. You use technology and your age to your advantage. You automate your savings, your investments and even your own behaviour. This way you don’t even need to think about saving or investing. You simply review your money each month or year and see it stacking up.
I’ve saved the equivalent of almost $100,000 by age 30 and the results are starting to compound. As a result I have a plan to be financially independent by 2036. It’s shocking how much you can save by building strong money habits. It doesn’t take gallons of willpower or effort. Just simple nudges such as reviewing your spending, separating out your savings and getting started with investing. The financial technology is there to help us enhance the way we spend from earning cashback to setting up an investment account in minutes.
Very good tips. Applicable to many of us who are not Gen Z 🙂
Thank you! I’m glad you think so.