You’re done with high school and are making your way through college. Even though you’re young, you want to get a start on your financial goals, so you wonder how much income you should save before you turn 21.
Before you stress about hitting a specific number, remember everyone is different. If you want to save more, you can do a few things, but it’s okay if you can’t afford to save much yet.
Read on to learn more.
How Much to Save by 21
The amount you should save before becoming a 21-year-old depends on your living situation and what state do you live in.
For example, if you started working at 16 and have worked 20 hours each week for 50 weeks a year earing $10 Dollar Per hour(Close to Federal Minimum Wage), you will earn $10,000. You will pay approximately about 8% in payroll taxes. you will be left with $9200. We assume you are saving about 2,000 out of this amount and use the remaining for your living expenses.
Based on $2000 Savings Per year, You should have saved $10,000 between 16 year old to 21 year old.
So by age 21, you should have saved Earned $50,000 in 5 years and saved $10,000
However, other people at your age may not have much money in their savings account. Maybe you’ve wanted to focus on school, so you don’t have any income aside from the occasional babysitting gig.
Some 21-year-olds have $0 in savings, while others may have thousands. The balance can also depend on your upbringing and if your parents gave you a big allowance as well as if you spent most of your allowance or not.
Try not to compare yourself to others at your age. If you haven’t worked much, it’s okay to not have a ton of money in your savings account.
Now that you know ” How Much Income Should I Have Saved by 21″, learn learn about how you can increase your saving as a young 21 old adult.
Money-Saving Methods for Young Adults
While there’s no set amount you should save before 21, you can follow a few saving methods. That way, you can build your bank account balance even on a small budget.
It’s never too early or too late to start saving money. Consider the following options for increasing your savings if you’re in your late teens or early 20s.
One of the best options to try is to use the 50/30/20 rule. This Rule of Thumb can definitely get you started on the right Savings Goals. The rule has you dedicate 50% of your income to the things you need, such as housing, food, and transportation.
You can spend 30% on the things you want, such as going out with friends or buying new clothes. Then, you’ll save the remaining 20% of your income for the future.
The nice thing about this rule is that you can use it on a small income. You can also adjust the percentages if necessary, such as to 70, 20, and 10.
As you earn more money, you can start to save more, and you can spend more on better things.
Save Every Bill
Another excellent way to save money when you’re young is to save cash bills. For example, you can decide to save every $5 bill you receive from change or a bank withdrawal.
Saving every bill is an excellent choice if you use cash a lot. Odds are, you’ll come into contact with a lot of $5 bills, for example, so you can build your savings quickly.
Then, you can add the cash to your regular savings account. Another option is to put the money toward your financial goals, such as paying off your credit card debt.
Consider keeping the money in an envelope until you can get to the bank. That way, you won’t tempt yourself to spend the money.
Use a Coin Jar
When saving money, you might want to save the coins you get back as change. You can use a coin jar or an old-fashioned piggy bank to save your pennies and other coins you receive.
As the jar fills up, you can deposit it at your bank to help bulk up your savings account or emergency fund. Of course, this is easier to do if you frequently pay with cash.
If you prefer to use a credit or debit card, you can round up your purchases. Some savings apps will automatically transfer the remaining change to a separate account.
For example, if you pay $4.50, the app will then move $0.50 to your savings for you.
Save Unexpected Money
As a 21-year-old, you may not make a ton of money. But you might have a good budget to help live off the income you do receive regularly.
If you want to save money for the rainy day, consider setting aside any money you get that you don’t plan on getting. Maybe you get a raise at work, so you save the extra money you get on your future paychecks.
Or perhaps you get an extra cash gift from a relative or friend for your birthday. Instead of spending that money, put it in savings since you probably aren’t relying on that money.
You can also do this with any unexpected refunds or rebates you get. We recommend saving three to six months of your living expenses for the rainy Day. Keep in Mind, If you loose job, or something unexpected happens, you can use this money to survive for a period of time.
Live at Home
If you can, consider living at home to help save money. Assuming your parents won’t charge you rent, you can save hundreds of dollars a month.
It’s not that unusual for young adults to live at home, especially before the age of 21. You can also practice “paying” rent but instead of transferring the money to a landlord, you can put it in a savings account.
Living at home may also help you save on food and transportation costs. You can contribute to family groceries if you have the money, but you can also take advantage of when your parents are willing to pay.
Similarly, if you go to school or work near where your parents work, you can carpool. That can help you save on gas, but you can still get around town.
Live Below Your Means
Maybe you need or want to move out of your parents’ house. In that case, you can still save money, but you’ll need to find other ways to cut back on your spending.
One option is to look for roommates so that you can split rent and utilities. You can also split the cost of household staples, like paper goods, milk, and bread.
Look for apartments that are less than your total budget for housing. Try not to eat out too much, and find affordable meal ideas that you can cook at home. Try not to use your credit card or incur any high interest rate debts. These will make it difficult to save money.
Then, you’ll have more money to put toward savings, student loans, or other things.
Set a Budget
If you don’t do anything else, at least try setting a realistic personal budget and set some savings goals. Make sure you budget a certain amount of money to put into savings each month.
Treat your savings like a bill, just like how you’d pay your rent or any other regular expense. If you find you can’t afford your current budget, redo it so that you can afford what you want.
You may need to consider your financial priorities to know what to cut. For example, going shopping each month might not be important, so you can cut that for a while.
Once you start earning more money, you can add things back into your budget. However, you can decide to reduce your spending for a few months so that you can reach your savings goals.
Automate Your Savings
If you forget to move money to your savings account, you can automate the process. One option is to ask your employer to split your paycheck so that a certain amount goes to your checking and the rest to your savings.
You can also set up automatic transfers through your bank. Depending on your bank, you may be able to schedule the transfers to occur monthly or weekly.
Either way, you won’t have to worry about setting aside time to move the money yourself. That can help you save time and money to help reach your financial goals.
If you can’t automate your savings, you can set an alarm in your phone. Now, that’s not the most ideal option, but it can still help you remember to save money.
Where to Save Your Money
Whether you want to save thousands by 21 or few hundred, you need to know where to put that money. You can divide your savings into multiple accounts.
That way, your money can work for you and help you work toward various money goals. Consider the following places to put your cash as you start to save money.
One of the first accounts you should use is a standard savings account. You can open one at a local or online bank, so you can get the account going no matter where you are.
A general savings account is fantastic for an emergency fund or any money you want to access quickly if necessary. You can open the account at the same bank as your checking account, so transfers can be easy.
If you have different saving goals, you can create an account for each. For example, you may set up a travel fund or a fund to help pay off your student loans after you finish school.
Unfortunately, savings accounts won’t pay you that much in interest. However, they’re convenient, and they usually don’t have a minimum balance requirement.
Certificate of Deposit
A certificate of deposit (CD) is a combination between a savings account and an investment account. You can open one at your bank, and you’ll need to make a relatively large deposit.
The certificate will have a set term, usually between 6 and 60 months. You can’t withdraw the money for that period without incurring a significant fee.
However, CDs usually pay more in interest than regular savings accounts. That makes them an excellent choice for medium-term savings goals, such as to save for a down payment on a house.
When the term ends, you’ll enter a grace period where you can withdraw the cash. If you don’t do anything, your CD will renew at the current interest rate for the same length of time.
You can also open an individual retirement account (IRA) or a 401(k) if you have a traditional full-time job. Both options are perfect to help you start saving for retirement.
Even when you’re 21 or younger, you can start saving for long-term goals. The earlier you start saving for retirement, the more money you can have in your account when you stop working.
You can take advantage of compound interest, where you’ll earn money on the interest from your contributions. That means you can afford to save a bit less each month compared to if you waited a few years.
Plus, if you open a traditional IRA or 401(k), you can deduct the contributions from your taxes. Then, you can save even more money.
You might also want to invest your money for other goals since you can earn more than in a savings account. Now, investments aren’t the best for short-term goals because the market can fluctuate.
However, you’ll usually earn more money over a long period. If you don’t want to put money away for retirement but are okay with saving it for a while, you can invest it in index funds or individual stocks.
Investing can be scary since there’s a chance you’ll lose money. Try not to freak out when the market drops and take your money out of your investments.
If you can wait a while, the market may come back, and your investment can increase in value. Then, you’ll have more money to withdraw and put toward your money goals.
Health Savings Account
You may want to look into your health insurance and determine if you have a high-deductible health plan (HDHP). If so, you qualify for a health savings account (HSA).
An HSA is a special type of savings account that you can use for qualified health expenses. The money you contribute is tax-deductible, so you can save money on your taxes now.
You’ll be able to use the balance to pay for doctor visits or prescriptions. You can also save the money and invest it to help the balance grow.
That way, it can work like a second retirement account, but you don’t have to wait until retirement to use the money. As long as you don’t use the cash for non-medical costs, you won’t have to pay a penalty to withdraw the cash.
How Much Income Have You Saved?
Saving your income can be difficult, especially when you’re young and don’t make a ton of money. It may seem like you’re behind on savings if you don’t have a ton of money at 21.
Fortunately, it’s okay to not have a ton of money in savings at this point. But you should consider a few ways to save for retirement and not thing just about short term spending .
Now that you have learned more about How Much Income Should I Have Saved by 21, Do you want to learn how you can save on your taxes? Use an income tax calculator.