It can be so daunting when it comes to saving money when you are making less money. Let me tell you the good news, doesn’t matter how much you make it is always possible to save at least 1%-2% of your income.
These are some of the things you need to consider doing when you are starting off in your 20’s or at any point in your life to save more money and retire comfortably.
Avoid Bad Debt
It is very easy to get into bad debt so be careful not to get into bad debt. So what is bad debt?
Buying a new car especially with a loan is very bad debt, the value of a new car depreciates 10% the moment you crossed the lot from the auto dealer. Try to get a car you can pay with cash or at least a used car so you won’t break a bank.
so Never Buy A New Car unless you are a millionaire, even then I won’t recommend it.
Buying fancy clothes & things you don’t want/need especially using a credit card debt and when you can’t afford. I use at-most 10 pairs of clothes in a whole year, during the past year that came down to 5 pairs due to WFH situation, your situation might different but don’t buy fancy suits and clothes which you will rarely use more than 2 times, most of the time you cant even sell them off.
Never get a pay day loan, people get payday loans to cover their bills before pay day avoid getting payday loans they cost you a fortune, you might be surprised to know you might be paying 2 times more than what you have borrowed.
Pay Off Existing Debt
The moment you have enough saving start paying off your student loans and high-interest credit card debts, the average credit card interest is anywhere between 15%-24% based on creditworthiness. Don’t just pay the minimum balance pay a little extra and you will be surprised how much you can save.
Example: Let’s say you have $20000 of credit card debt and 16% APR. If you pay $350 it will take you 109 months to clear the loan and pay an interest of $17922, but if you add $150 to your monthly payment you will clear the credit card debt in 59 months and pay $8771 still higher but you save 50 months and $10000 dollars in interest, think about what you can achieve in 50 months and $10000.
Start Saving & Investing
Saving and investing are 2 different things, savings mean you save in an interest-paying saving account which would almost return nothing on the other hand investing will get you good returns on your investment when done properly.
A Penny Saved Is a Penny Earned
If you start investing in your 20’s you will end up having 2 times more money in your retirement than if you would have started in your 30’s. start investing in your 20s the power of compounding is astonishing.
Let’s say you started investing $100 a month starting from the time you turned 21 until you turned 31 you will end up having $18344 with an 8% annual rate of return (S&P ARR is 10%-11% for 30 years) and even if you stop investing any money you would end up with $184,590 by the time you are 60 years that’s the power of investing.
So start investing it doesn’t matter how much you make you can start investing with as low as $5 with apps like acorns.
Start putting money into your retirement accounts like 401K, IRA, Roth IRA. I have written about them in detail here https://moneyandplanet.com/different-retirement-saving-options-you-need-to-consider/