It's wise to start saving money in your twenties, in addition to adopting other healthy financial habits, such as contributing to a retirement account and building up your credit history. These habits take dedication and time, but the sooner you start the easier it'll be to stick with them. Here are some specific steps you can take toward future financial success:
Set aside 10% of your income each month: If you can save 10% to 15% of your monthly income, over time, you'll build a substantial sum to use later for buying a home, setting up a college fund, or planning for retirement. Have a specified amount deposited directly into a savings fund to avoid being tempted to spend the money. Out of sight, out of mind.
Create a safety net: If possible, put away at least six months of savings in the event of an emergency. If your car or home unexpectedly requires significant repairs or you lose your job, this emergency fund will provide cushioning until you find another source of income. To determine how much you need to save, calculate expenses such as rent, utilities, and day-to-day living essentials. Then multiply this amount by six for a ballpark estimate of how much you need to save.
Keep your debt low: With debt comes interest, resulting in payments going toward the interest rather than the principal loan. You should pay off debt with the highest interest rates first — typically credit cards, followed by student loans. Doing so will shorten the amount of time you're paying those higher interest rates, saving you more money in the long run.
Establish solid credit: This is important as lenders will look at your credit rating and history when considering whether to give you a loan for an automobile or a home. Credit cards are an excellent way to build credit. Paying off your credit card every month is a good habit to have, as you'll build credit without going into debt. But carrying a monthly balance can be good for your credit, too, as long as you don't carry too high of a balance. A good rule to follow is to use no more than 30% of your credit limit.
Set up a retirement account: You can start your own retirement account, though it's worth looking into your employer's 401(k) plan, if they offer one. Many employers provide matching contributions for retirement accounts, allowing you to save considerably more over time.
Track your spending: Monitoring your spending habits will help you stay on track toward your financial goals. If you have the time and discipline, creating a simple spreadsheet with all of your monthly expenses can be enough. But if you prefer a set-it-and-forget-it approach, there are many different apps available that can sync directly to your bank account and provide real-time tracking of your spending habits.