Saving money in your 20s is no easy task. As most people between the ages of 20 and 30 are still figuring out what they want to do for a career or are attending post secondary education, the thought of saving for retirement in your 20s seems absolutely terrifying. But, if you’ve managed to grab a job while you’re attending post secondary or even already have a solid job in a career you can see as your long term passion you’re definitely in luck.
Millennials are severely lacking when it comes to investing
As per an article on CNBC in late 2018, only 23% of millennials prefer investing to cash. This is staggeringly low, and is the result of a couple of things.
For one, millennials are having a harder time getting into the job market. Poor economic conditions and post-secondary degrees that really don’t lead to much of anything has put them in a tough position. They are now left with a mountain of student loan debt and not much to say for it.
Secondly, millennials are generally scared of the stock market. I believe this is solely due to a lack of knowledge. The stock market has been statistically proven to provide long term gains, but people still would rather hold on to cash. Which, by the way, is losing you money in terms of purchasing power.
Knowledge of the stock market is imperative, which is why companies like Wealthsimple, Questrade and websites like ours are doing everything they can to provide free education to get the naysayers to start diving into the markets.
Being financially responsible is more important than investing
Anyone can invest money. And saving money in your 20s is good and all, but there comes a point where you need to make sure you’re in the proper position to do so. If you’ve accumulated debt, particularly high interest debt like line of credits, credit cards or high interest car loans, you’re better off eliminating that debt before you even save. If you’re looking for more advice, check out this piece on getting out of credit card debt.
The key to getting a head start on saving for retirement in your 20s is to be financially responsible. I know that’s really hard to understand when you’re living it up in your younger years, but you’ll thank yourself later.
Spend money when you have money. This is absolutely key. In order to save money in your 20s, you can’t be spending money on a credit card planning to pay it off when you receive money. I’ve always made purchases based off this, and it put me way ahead of the game in my 20s. I’ve seen people get tangled up in this situation and debt starts to have somewhat of a snowball effect. And before you know it, you’re caught in a situation where half the money you pay towards your credit card or line of credit is going towards interest.
If you don’t have $1500 dollars to purchase that new TV, wait until you do. It’s that easy
Make the most of company benefit plans
This is something that I took advantage of in my early 20s, and it actually allowed me to save up enough money to purchase a home relatively early in my life. If your company offers a stock purchase program, and RRSP matching program or a pension matching program do it. It’s hard for us to think that far down the line in terms of retirement goals, so we opt out of these plans and severely regret it in the future.
I was able to take advantage of a 4% RRSP matching program offered to me by my company in my early 20s and was able to use my contributions as well as my companies to purchase a townhome using the RRSP Home Buyers Plan as my downpayment.
I made the mistake of opting out of company pension plans when I was younger, and I’m currently kicking myself for doing so. Don’t make the same mistake as I did in my 20s and get started on this immediately!
No matter how little, it all helps
The thought of saving in your 20s doesn’t appeal to many people at this age because they simply don’t have enough. And while this may have been the case 15 years ago when commission fees on investments were extremely high, it just isn’t the case anymore. You can now buy stocks for a fraction of the cost, and even something like $500 makes sense to invest now.
So, if you’re sitting at home with $1000 in savings and zero debt, you’d be wise to start making your money work for you. Ignoring the need for a “uh-oh” fund, which is an important concept in itself, if you invested this $1000, in 30 years time assuming an 8% return you would have $10 175.94. Now, you may be thinking this doesn’t seem like much, but every little bit helps. For example, take that $1000 and contribute $100 a month for 30 years and you’ll end up with $150 917.72.
It’s time to challenge the stigma that investing is only for the rich. You can get started with any amount you want, and it is never too late.
Educate yourself on saving, spending and investing
Although some of us are born with the frugal gene, most are not. We aren’t educated by any sort of institution on how to spend our money, and in fact we are directly targeted by consumer companies who want you to spend, spend, spend. If you’re going to save money in your 20s, you need to learn how to go about it. Learn how to find the best deals on products you need, learn how to spend within your means and not on a credit card.
Learn how to find a reliable used vehicle instead of buying new. These are all things that are fairly easy to learn, and if you were going to get started with one thing, I’d recommend reading Your Money Or Your Life by Vicki Robin. It’s an excellent book that can teach you frugality and smart spending habits.
And last but certainly not least, if you’ve saved enough to the point where you’re comfortable investing that money, it is absolutely imperative you learn how to do so. We have a ton of resources here that can help you at Stocktrades.ca, but it also helps to look at sites like Investopedia or read investment books such as (and also one of my all time favorites) One Up On WallStreet by Peter Lynch.
It’s not as hard as you think saving money in your 20s. The key is to adapt to your current situation, spend within your means and generally find a happy medium where you are enjoying life, yet not breaking the bank to do so.