8 Easy Things Every Young Adult Should Do To Save Money Everyone wants enough money to do the things they like. Sometimes that requires us to do a bit of planning. Sometimes it means doing tedious stuff we'd rather not. Young...

Everyone wants enough money to do the things they like. Sometimes that requires us to do a bit of planning. Sometimes it means doing tedious stuff we'd rather not. Young people are in a unique position when it comes to saving money. They have the time and flexibility to take greater investment risks than older people but are also less likely to be seriously interested in managing their finances.

In this article, we'll go over eight simple things every young person should do to save and get better acquainted with their money. We've picked something that should be relatively easy and time-friendly.

As a young person, it can be easy to put off certain essential activities related to your financial future. But when it comes to saving, the earlier the better. Waiting to start saving until later in life can be a costly and stressful mistake.

#1: Use Your Credit Cards Sparingly

Not all young people understand the concept of the credit utilization ratio. Your credit utilization ratio refers to how much of your credit line you're using at any given moment. For example, if you have a credit line of $1,800 and put $400 worth of purchases on that card, your utilization ratio would be 22.2%.

As a general rule of thumb, keeping a low credit utilization ratio is better for your credit score. You may have heard of the "30% rule," which suggests the optimal utilization ratio is at most 30%. While it's true a 30% ratio is a good goal and perhaps a more reasonable target than, say, 10%, it's generally true that the lower your ratio, the better.

Your credit utilization ratio will impact your credit score, a significant number because it can influence the interest rates you earn later in life and your ability to take out loans.

#2: Automate Your Credit Card Payments Every Month

As an addendum to the previous tip, automating your monthly credit card payments is a good idea and can save you money in the long run. You should pay off as much of your credit debt each month. If you carry a balance each month, you'll start to accrue interest charges that will cost you money.

Currently, most banking apps allow you to set up automatic payments. These are generally a good idea because they don't require you to remember to make payments every month and require less initiative (the greatest obstacle to saving, in our experience). Look at the app for your bank and see if you can set up payments to pay your credit card balance in full every month.

Carrying a balance can also negatively impact your credit score, the importance of which we've already touched on.

#3: Track How Much Money You Spend Every Month

One of the more tedious money-saving tricks on this list, but equally important, is budgeting. Making a budget not only makes you more aware of how you spend money every month, but it also makes you more conscious of what you can afford to give up. The steps to creating a budget are relatively straightforward.

First, print out or download copies of your monthly transaction histories from all of your cards (both debit and credit). Get a highlighter or two and break up transactions into different categories. Categories could include groceries, restaurants, transportation/travel, clothing, alcohol, rent, or utilities.

Consider which categories you spend the most in. Are they categories that are daily essentials, or more recreational? Compare these numbers with your total monthly income. If you can identify a certain number of discretionary purchases you think you could live without, you could set yourself a goal of contributing that amount to a retirement savings plan instead.

While we still recommend having a good time and not being too tight-fisted when you're young, making a budget, at the very least, makes you more aware of how you spend your money and what you spend the most on.

#4: Set a Savings Goal for Yourself

Having a savings goal keeps you focused and accountable for your spending habits. Though many people feel they're too young to start thinking about retirement, it can be a helpful exercise to consider your priorities in your later life.

Do you want to retire at a young age? Do you want to retire in a large city? If you answered yes to either of those questions, starting your savings journey at a younger age is even more critical.

Even if you don't have a clear sense of where you want to be when you retire, setting a savings goal for the time being can be helpful. For example, let's say you spend $200 at restaurants each month. Maybe next month, try to only spend $150 — and put an additional $50 into a savings account (more on that soon).

Having a concrete savings goal is also better than having an abstract one. Knowing that you want to earn at least $75,000 per year in retirement gives you a much clearer sense of where you need to be, and helps put in perspective where you are now.

#5: Start an Emergency Fund

According to recent data, a majority of Americans (57%) cannot afford a $1,000 emergency expense. Anyone who has dealt with an unexpected medical issue (a sudden attack of appendicitis was mine) or a car maintenance problem likely understands the importance of an emergency fund.

Most experts believe you should have 3 to 6 months' worth of living expenses on hand in case of an emergency. In 2022, thousands of tech workers were laid off. Two years earlier, thousands more lost their jobs because of the global pandemic. In such situations, having money to pull from while you readjust your circumstances — is absolutely essential.

#6: Research Retirement Savings Plans

The most essential and complicated tip we're offering is researching retirement savings plans. Many options are available to you, and if you're a gig worker or freelancer, the options become more complicated.

There's a chance your job as a young adult will offer you some retirement savings plan – usually a 401(k) – and sometimes that plan will include company matching for your contributions or a stock-related perk. For most people in their early 20s, though, retirement savings plans may require a bit more independent work.

More people are working in today's economy as freelancers and independent contractors. If you fall into this category, you may want to consider options like a SEP plan or a solo 401(k). While the latter allows for both salary deferrals and employer non-elective contributions, you may opt for a different type of plan depending on your needs and income.

Putting money towards retirement savings as early as possible is an intelligent decision. You don't want to have any risk of running out of money when you're old, so start planning for it now!

#7: Consider Different Investment Options

As a young person, you have what's called a long time horizon before retirement. You can therefore take greater risks with your investments, as taking a big hit when you're young is more feasible since you have more time to recover and recoup losses. As you age, you'll need to be constantly monitoring what's called your asset mix.

An asset mix is the breakdown of assets within your portfolio. When you're younger, investing heavily in things like stocks (which carry greater risk, but historically offer greater rewards) is a really great decision. The stock market has consistently increased over time, so investing money early and letting it sit until you're older will usually translate to a great yield.

As you get older, though, your asset mix may become more defensive. This could mean investing in things like certificates of deposit, which typically don't earn you as much money on your investment but are much safer.

#8: Educate Yourself

This may seem like an obvious tip, and you'll naturally follow it as you age, but try to educate yourself about different financial topics. It's useful to understand how the stock market works, how different investments affect your portfolio, and how macroeconomic concepts like inflation and monetary policy affect your daily spending and interest rates.

The more experience you gain, the more you'll understand and be able to apply it to your own financial situation.

The Bottom Line

Young adults often resist taking the time to develop their financial independence. In this article, we've gone over eight simple things all young people should do as they leave college or enter the workforce. Classic financial tools like making a budget and setting savings goals are already familiar to most of us, but remembering to automate your credit card payments and set up regular contributions to a retirement savings account requires some extra effort.

Don't be intimidated, though. You've got a wealth of information online and friends or family around you to help you along the way.

Featured Image Credit: Photo by RDNE Stock project; Pexels; Thank you!

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