Six savings goals for twenty-somethings


If you’re in your 20s, you’ve probably recently left university and are finding your way in the world of work, thinking about getting married and even starting a family, which makes it even more important to lay down some life-long habits and set yourself some financial goals. Here are six savings goals you should be working towards to set you up for life…

1. Write a budget

It’s often scary to look at your monthly expenses and outgoings and realise that you’re living beyond your means or your expenditure is such that you have no money left over to save. Take the time to write a budget covering every expense from daily work lunches and coffees to annual ones such as dental check-ups, holidays, and car and travel insurance. It’s hard to make changes to large-ticket items like rent and mortgage or car payments, but you’ll probably find that your discretionary spending is what’s tipping you into the red. Cut out some of those coffees and lunches (make yourself a packed lunch) and set fixed amounts to spend on clothes and going out to give yourself a fighting chance.

2. Build an emergency fund

Once you’ve freed up some disposable cash, one of the most important savings goals in your 20s is to start an emergency savings fund to cover you when things go wrong. (And as the pandemic has shown us, things can go very wrong, very quickly.) Think of it as an insurance policy for when you lose your job or your car breaks down, or your landlord decides he’s holding on to your deposit — it means you don’t have to rely on your monthly income or have to whack it onto a credit card or payday loan.

How much you save depends on your job, your income and any debts you have. Your ultimate goal should be to save between three and six months’ worth of living expenses. When you first start budgeting, try to put at least 2% of your monthly income into your emergency fund for six months. Then, increase that amount by 1% to 2% every six months to a year to build your emergency fund over time. Remember, your emergency fund should be easy to access, so keep it in an instant access deposit account.

3. Pay off your bad debts (snowball effect)

By the time you’ve left university and started working, you’re probably used to debt. But there’s a world of difference between good debt and bad debt and you should avoid bad debt as much as possible. Good debt include student loans (although the government should be ashamed about the interest rates it charges), mortgages and the like, while bad debt includes credit cards, payday loans and other types of loans that charge very high interest rates.  The problem with bad debt is that the interest builds up very quickly so what might start out as a small loan can balloon into a huge debt very quickly.

Make a list of all your credit cards and loans and rank them by size. Pay the minimum payments on all of them except the smallest one and pay off as much as possible. For example, if you’ve got £200 available for debt repayments and £120 covers the minimum payments, use the £80 to pay off the smallest debt and keep it up until you’ve cleared it. Then move the £80 plus whatever the minimum payment was for that debt, to the next debt.

The trick is to maintain the £200 for debt repayment until the last debt has been paid off. Clearing each debt will feel great and give you the impetus to carry on. Whatever you do, don’t reduce the total amount and if you find that you’ve more spare cash, throw it in too.

4. Make your house deposit a savings goal

Another financial objective you should work toward in your 20s is to set aside money for a deposit on your first home. Banks and mortgage providers ask you to make a down payment of anywhere between 5% and 25% of the value of the house or flat.

The larger the deposit, the lower your mortgage payments will be or the bigger house you’ll be able to buy. For that reason, it’s useful to start saving for a deposit now even if you don’t plan to buy your first home until your 30s or beyond. Depending on your job stability and whether or not you want to stay in the city where you are currently working, your 20s might not be the best time to buy a home. No matter how far in the future a house purchase might seem, if you start saving early, you will be in a better position to buy a house when you are ready.

5. Start saving towards your retirement

Talking about retirement in your 20s might seem strange, but is worth remembering that you’ll probably work for about 40 years and then live 30-40 years in retirement. That means that you’ve got 40 years to pay your way, by your home etc and save for retirement! Setting aside the last ten years of your career to do it, just isn’t going to cut the mustard.

The key to having enough money to retire on, is to put aside money in a pension early in life and continue to do so regularly until you retire. Ideally, you should start saving for retirement as soon as you get your first job. In this case, compounding interest is your friend — the more you save in a savings or investment account when you’re young, the more that money will grow and the more you will have to enjoy in retirement.

By law, all UK employers must offer a pension and you will be automatically enrolled in your employer’s pension scheme. Try to contribute as much as possible as you’ll benefit from your employer’s matching contributions too (up to a limit). The good thing is that you get tax relief on your contributions, so you’ll have more in your pay packet than you expect.

The earlier in life you start saving, the less you need to save annually as a percentage of your income during your working years to meet your retirement income goals.

6. Spend wisely, save wisely

Another important goal to adopt in your 20s is to spend more wisely — in other words, spend on the things that really matter and cut the things that don’t. You don’t have to deprive yourself, either. You can set up a budget, or save for expensive items by cutting out unnecessary spend like coffees (nothing wrong with a pair of Louboutins) or set yourself fixed monthly amounts for going out, clothes etc and make sure you stick to them.

Embracing frugality will allow you to spend more on the things that are important to you now, and will establish responsible financial behaviours that will serve you well beyond your 20s.

Once you have your rainy-day savings set aside, consider investing for the long term. Start now using our platform calculator.

Photo by Patrick Tomasso on Unsplash