Budgeting in Your 20s: 5 Things to Keep in Mind

Written by Cora Gold

Many significant life changes happen in your 20s. You graduate from college, launch your career, move into your first home or apartment, and learn to live with complete independence. These changes are expensive, so you must carefully manage your money. Here are five budgeting tips to help you navigate your 20s with financial security.

Always Follow the 50/30/20 Rule

The 50/30/20 rule is the most straightforward money management method around. It gives you clear spending boundaries and helps you maximize your savings. According to this strategy, you should split your finances into three categories:

• 50%: Half your money should go toward your most necessary expenses, such as housing, utilities, groceries, and gas. 

• 30%: A smaller chunk goes toward your miscellaneous expenses, such as dining out or buying home decorations.

• 20%: The smallest and most important percentage goes toward your long-term savings, so you can pay off your debts while enjoying a comfortable lifestyle.

The 50/30/20 rule is effective because it requires you to track all your expenses. It creates full accountability and transparency, which is exactly what young adults need to keep their spending habits in check. Following these parameters will be, but you’ll feel much better contributing significant funds to your long-term plans.

Don’t Forget About Cash

Reckless spending habits are extremely difficult to overcome when all your money is virtual. It’s easier to spend it if you can't see it. However, you can’t forget about cash. When you’re holding actual dollars instead of a plastic card, you get a much better perspective on your spending habits.

One popular budgeting strategy called the cash envelope system is a great way to control your spending. It paints a clear picture of your financial situation, requiring you to convert your income to cash and split it into different envelopes. It’s a strict micromanagement method, but such measures are necessary in early adulthood when you live paycheck to paycheck.

Give each envelope a clear label for every major category of spending. Your envelopes might look like this:

• Bills

• Savings

• Groceries

• Cleaning supplies

• Car expenses

• Clothes

The cash envelope method is quite flexible. You can use as many envelopes as you need. It will also incentivize you to reduce your number of envelopes, which helps you stop overspending on things such as happy hours and dinners out. It’s not supposed to replace your bank account, but it’s a great way to improve financial visibility.

Make Room for Unpredictable Expenses

Everyone thinks they have their spending under control until they remember random one-off expenses. Do not underestimate how quickly these types of payments can add up. Here are some common examples that many people overlook:

• Uber rides

• Parking passes

• Gym memberships

• TV or computer subscriptions

• Hidden fees for take-out food and online shopping

As you get older, you might also have to make room for major lifestyle changes, such as marrying and starting a family. Weddings have dozens of expenses, including food, the dress, and rings, to account for and children will dominate your budget once they arrive on the scene. These changes will happen faster than you think, so you must have some financial flexibility.

Use Apps to Guide Your Spending

You need to track every cent of your spending to follow the 50/30/20 rule. Unless you’re a math or finance genius, you’ll probably need some help. These free money management apps can help you record your expenses and stay within your budget:

• Mint

• GoodBudget

• EveryDollar

• PocketGuard

• Monefy

• Spendee

No one is perfect. Sometimes automated reminders and technology are necessary to keep up in this fast-paced world. These apps do all the heavy lifting for you, separating your expenses into your most important categories. An astonishing 56% of Americans don’t track their spending at all, so you’re already doing better than half the country.

Be Realistic About Your Lifestyle

Everyone in their early 20s wants to go out every weekend and eat at their favorite restaurants multiple times a week. In most cases, these spending habits are not sustainable. You must be realistic about your lifestyle. What’s more important to you — an exciting nightlife or your family plans and career goals?

Think twice next time you’re about to spend $100 at the club or pay a $10 fee for a food delivery. Are these decisions helping you reach your goals or hindering you? This kind of honest introspection is nonnegotiable if you want a stable financial future. Consider starting a self-improvement journal to keep things in perspective.

Your 20s Will Determine Your Financial Success

You must make wise money management decisions at age 25 to ensure financial security at 40. Your 20s will set the foundation for the rest of your adult life, for better or worse. Focus on saving more than spending. You can spend to your heart’s content once you have a more stable income, but for now, you should consider your expenses more carefully.