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Updated: Sep 04, 2023

5 Ways Create a Savings Budget in Your 20s

Only one in three Americans prepare a detailed household budget. Learning how to create your millennial budget plan is essential to financial stability.
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It’s no surprise that many 20-somethings aren’t good with their money.

Fresh out of college (or soon to be) with piles of student debt to repay, young adults entering the real world find themselves in a tough financial situation.

Having lived through the worst recession since the Great Depression, millennials might be reluctant to invest their money or take financial risks.

But saddled with large debt and entering a tough job market, it can be difficult for today's youth to climb any ladders to financial freedom without a millennial budget plan.

The path millennials take into adulthood will differ from their parents in many ways.

Millennials have higher levels of student debt, poverty and unemployment -- as well as lower levels of wealth and personal income -- compared to Gen Xers and Baby Boomers at the same stage in their life cycle.

Parents of millennials want their kids to succeed, of course.

The path to success for any young adult -- no matter what generation -- is a solid foundation in understanding the basics of personal finance.

Sadly, lessons about saving and budgeting aren’t always passed down from one generation to another.

Learning how to save starts at a young age

“I was never really taught to budget,” says Candace Manriquez, a 33-year-old radio producer from Long Beach. “I definitely would have benefited from budgeting and saving in my early 20s. I held a job where I made nearly $80,000 and aside from my 401(k), I really didn't save much.”

Manriquez says she wishes someone had taught her how to budget when she was younger, but with her parents living paycheck to paycheck, she didn’t learn about how to save money at home.

A school wasn’t any help either. Though statistics show that students who are taught financial literacy in high school are more responsible when it comes to money, most states don’t require students to take a course in personal finance.

“It’s critical that young adults receive a sound financial education as they make long-lasting decisions about college and how to finance their education,” says Mary Johnson, director of Financial Literacy and Student Aid Policy at Higher One, which sponsored a study on how early financial knowledge influences financial decisions.

Students who receive financial literacy education are more responsible with loans and credit, more financially cautious, and less accepting of debt as a necessity.

Whether you learn about financial literacy through the classroom, at home, online, or through trial-and-error, it’s essential for young adults to educate themselves on the basics of money.

One of the first lessons that many young adults need to master is how to create a budget.

“I think budgeting should be taught well before the 20s because preparation is the best thing,” says Kryselle Luna, a 25-year-old bank teller from Las Vegas. “I think in my early 20s I was bad with money. Now I think I’m better, but it is always a constant learning experience as new challenges and opportunities arise.”

So how do you budget?

For 20-somethings looking for a foolproof formula to create their first adult budget, sorry to disappoint, but there is none.

There is no one-size-fits-all solution to creating a budget because it depends on what works best for you. In fact, there are several ways that you can approach budgeting.

Some experts prefer the 50-30-20 budget fix, where 50 percent of your after-tax income goes to fixed living costs, 30 percent to fun stuff like vacations and entertainment, and 20 percent goes to retirement and debt management.

Others believe you should go a step further and invest some of your money in the stock market and mutual funds as part of your budgeting plan, if you can handle it.

And some experts say you should create multiple budgets that exist on a sliding scale in case you experience fluctuations in your income.

That is, you create a regular budget similar to the 50-30-20 plan and then make a big money budget (in case you come across a big windfall) and a bad budget in case something catastrophic like a health scare of job loss occurs.

However you choose to create your millennial budget plan, the important thing is making sure you have one. If you’re looking for some guidance, here are the crucial steps to budgeting that will help keep your spending in check and savings flush with cash.

1. Set your goals

Learning to budget is a crucial part of achieving your financial goals, which is really your ultimate objective.

You should have both short- and long-term financial goals in mind before even thinking about your budget. Keep those goals in mind as you allocate money and make adjustments to your budget.

After setting your goals, consider opening an online savings account, which gives you a much better interest rate than a big bank.

It's also free to use and maintain, so it might be worthwhile to start a savings account, if you don't already have one.

Here are the top online banks that have highest savings accounts rates and free interest checking accounts:

2. Calculate your net income

The first step to creating a successful budget is to identify what your income is.

That would be what you earn in your paycheck minus taxes and employer deductions for things like 401(k) contributions and health insurance premiums.

What you bring home after all the deductions is your net income. That amount is what you will use to determine your budget each month.

3. Track your spending

You can’t make a budget if you don’t know where your money goes.

Sadly, only one in three Americans actually prepares a detailed household budget.

For at least one month, you should track all your expenses -- every single one, no matter how minuscule.

Once you figure out how you’re spending, you can make adjustments about how to allocate it.

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4. Break down your monthly expenses

Divide your net income into two broad spending categories: fixed expenses and variable expenses.

Fixed expenses like your rent don’t change each month. Other expenses, such as gas or entertainment spending, might vary (hence, why they’re called variable expenses).

How much do you spend each month on both types of expenses?

Record that amount with whatever is handy -- a pen, an app, your smartphone.

With each of your expenses, keep track of what you’re spending. Admittedly, it won’t be easy.

You might consider using your online banking records to evaluate your spending, carrying around a small pen and notebook, or reviewing your receipts every so often.

You want to total your expenses for the month and compare that amount to your income.

If your expenses don’t exceed your income, you’re on the right path. With the extra money you have each month, prioritize how you want to spend it depending on your financial goals.

For instance, you can use those funds to pay off your credit card or student debt more quickly if that’s one of your goals.

If your expenses exceed your income, you’re in trouble. You have to make adjustments. Fixed expenses don’t really go away (unless you, say, move), so spending on variable expenses will likely need to be adjusted. If that’s still not enough, you may have to look into ways to increase your income.

5. Be disciplined

Maintaining a budget isn’t a fun task, but it’s a necessary one. You need to devote time each week to keeping track of your finances and updating your budget.

That will require some amount of discipline, but it’s a worthwhile investment that can help you reach your short- and long-term financial goals.

Luckily, there are many tools available to help you keep track of your spending. Remember, a budget is fluid and you might need to make more adjustments one month and fewer the next.

Creating your first adult budget doesn’t have to be all doom and gloom, though. Experiment and see what approach works best for you. In the end, your pocketbook will thank you for it.

“Budgeting is something everyone needs to learn,” says Luna. “Even though it may have taken me longer to understand budgeting, I’m thankful that I know how to do it today.”

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