Saving money is what Generation Z doesn’t care about. Living paycheck to paycheck has become more of a habit that can’t be replaced.
One of my subscribers from the money list asked me a question, but before that, she told me this:
“Hello Aayush, I’m earning freelance income for the last 2 years. The average payout every month is somewhat $1800.
Still, I don’t have anything to call savings or investments. My question to you is, how one can save money as a 24 year old fresh out of college earning freelance income?”
Now that’s an interesting question. If you’d like to ask me a question, too, hop on to my mailing list. You’ll get a weekly newsletter along with an invitation to ask me a question every week.
Savings Advice for Anyone In Their 20s.
The biggest problem with Generation Z is peer pressure. When you’re a teenager in high school or someone fresh out of college, peer pressure is everywhere.
First of all, get rid of the mindset that you need to show off how much you’re making by flexing materialistic things. You don’t have to buy expensive clothes, watches, book luxury suites, and all the other stuff to show how wealthy you are.
You are wealthy, and you know it. That’s all that matters.
Forget about the world. Live your life the way you want. And if that means you really want to buy luxury commodities, by all means, do so. But don’t do it for others.
This mindset alone will save you hundreds of dollars every month.
Create a Budget
This is your first step towards increasing your savings dramatically.
When you create a budget, you know exactly how much you’re making and how much you are going to spend, invest and leave over in your savings account.
Creating a budget is important because there’s no other way you can hold yourself accountable. You need to see how much cash flow is coming in and going out to realize when you’re overspending.
The first two months of budgeting and following your budget plan strictly will show you where most of your money is going. And only then can you do something about the areas where you’re overspending.
You’ll be able to find multiple transactions that could have been avoided. All the money that you overspend on things you shouldn’t force you to keep your spending habits in check.
Do this for 6 months, and you’ll save more money on auto-pilot. Because you’ll simply avoid purchasing stuff, you don’t need and can live without. All that money will keep piling up in your savings account.
Try Wallet App by BudgetBakers. It a great money management app that connects with your bank account and allows you to track your income and expenditure automatically. It also differentiates your transaction into “Want,” “Need,” and “Must” categories.
It’s a great app, and I use it myself along with its sister app, Board, for my businesses.
Identify What You Must Have, Needs can Wait. Wants are a NO-NO.
Everything you purchase can be classified into three categories:
When your sole aim is to save as much money as possible all you should focus on is fulfilling your “Musts”. That too for as cheap as possible. Everything else can wait.
Your needs are the recurring household bills and other necessary expenditures that just can’t be ignored. Such as paying taxes, health insurance, and college fees.
The more you start living a frugal and modest life, the easier it will become to manage your spendings. Being frugal doesn’t necessarily mean being a cheap chad.
It simply means spending money on things that you absolutely need, and finding ways to do so at a cheaper rate.
Such as negotiating for the rent. You can always try to talk someone into reducing their asking price, so why not?
Identify what you “Want” and ignore it completely. Don’t let your emotions control you.
When you think you are being persuaded by the thought of buying something and you know it’s a “Want” category product, simply say,” I’ll buy it tomorrow” or I” ll do it later” to yourself.
In most cases, the urge to buy that product will fade off.
Stop Going To Starbucks
Okay, not literally.
It’s a generalization, but the basic idea is to stop going to places and buying stuff you know you are wasting money on.
Starbucks is a classic example. The average cost of a drink at Starbucks is $3. Some drinks like the Frappuccino cost above $4!
It’s preposterous. Why spend so much money on something you know you can get for a much, much lower price?
The habit of paying for a Starbucks coffee transcends into multiple aspects of our life. We don’t think before spending money on anything that has become a part of our life, whether for better or for worse.
Starbucks is just one example. Paying for Uber is another one. People develop a habit of spending just because they get comfortable with a service or a product subconsciously.
Every time you use Uber, you don’t think about how much you spend because it doesn’t matter. It makes your life easier, or at least you think it does.
You can save by not using it, and taking a mode of public transport. It would take a little extra time, but no, Uber it is.
And I get it.
Some people just can’t do it. They value their time and comfort over money.
But if you can and if you will, you’ll probably save a couple of hundred dollars every month.
Don’t Go All Out for Your Family
A lot of times when you graduate and get your first job, or start a business that starts generating profit or like in her case, start freelance work and get paid, you would want to go on a shopping spree for your family members.
And that’s natural, right. You do it out of love, to show gratitude towards your precious family. After all, you are what you are partly because of them.
So it’s nice to spend a full paycheck and go all out for your family – once. Maybe twice.
But don’t let it become a trend. Especially because you are in your 20s and you will be tempted to do it time after time. Because it’s so pleasant.
However, you shouldn’t go “All Out” ever. Spend a little money for nice jewelry or a new family vacation is fine.
Just don’t get carried away and keep pumping money on everything your family wants.
Different people have different aspirations. Your brother might want something, else your sister something else. You can’t fulfill each and every demand until you’ve reached a point where you have a great portfolio, a recurring revenue stream, zero debt and fulfilled your business or career aspirations.
Career opportunities for most job seekers don’t wait for too long. You have to make choices when it arrives and be prepared. The same goes for business opportunities. When they arrive you need capital to leverage your position.
My argument is until you fulfill your career goals and business dreams, everything else can wait.
You are not doing a disservice to your parents. You are simply delaying the joy and making it even bigger.
And they will be much happier once you get the financial stability and achieve your dreams.
If for any reason your family demands more, they are unhappy with your idea of savings, they get mad when you postpone a holiday or deny a “Want” purchase – move out. That’s it.
I’m not saying you should abandon them, but simply move out and distance yourself. Let your emotions rest a little. Let your family know how serious you are with your business and your career.
After you set up everything in the right order and can finally pay for everything they ask for, let them in.
If you’re blessed to have a family that understands your, scratch everything above. You don’t even need my advice.
Create a Goal
Creating a goal is essential to realize it. If you don’t have a goal, you don’t have anything to achieve.
Have a goal of how much you wish to save by 30, 40, and 50 years of age.
Put that goal at someplace where you can see it every day. To keep getting reminded of how each dollar you spend is going to affect the goal. Probably delay achieving it.
You’ll soon get rid of repulse buying and start thinking about the long term.
Goals are meant to be long-term and mountain-like. Don’t create a small goal that you know you can achieve without breaking the current spending habits.
Create goals that seem pretty hard to achieve, and then pursue them.
Start SIPs, But Don’t Watch
SIPs are fun. They are the easiest way to build wealth that you can enjoy in your forties. That is if you are smart enough to stop looking at the mutual fund prices every week.
SIPs are meant to set and forget. Monthly analysis is sufficient to realize whether to stay invested or cash out. Mutual fund SIPs help you build substantial wealth if you stay invested for at least 10 years through compounding your money.
Equity funds are projected to give well over 18% interest at the least in the next 10 years. Debt funds have constantly given 7-8.5% interest.
When you invest in debt funds, you don’t even have to worry about expense ratio or liquidity. You can wash out anytime you wish, but with a limitation.
Keep your SIPs active and don’t watch over them like a hawk. You don’t have to. Invest 15k a month and forgetting about is not as hard as you may assume.
Automate Your Finances
Automate everything when it comes to your savings and investments.
You now have an option to automate investments in stock too. Using Zerodha, you can set up a mandate to automatically fund your Zerodha Demat account. You can set up a SIP by creating stock baskets that will automate the execution on the date of your choice.
Automate everything you can. Setup SIPs for Mutual Funds, stocks, NPS (Tier 2 if you want liquidity) and NPS right now.
Don’t keep more than 1 year of emergency cash on your savings account. And if you do, create a sub-savings account or use the Linked FD feature offered by Banks like ICICI and Kotak Mahindra to earn an extra 2 -3% interest on your savings cash.
If you are a tech-savvy person, automate 2% of your income to buy cryptocurrencies you like. I suggest if you don’t want to take much big of a risk, investing in Bitcoin, Ethereum and Cardano would be the best.
But be a part of this change. Even if it is a bubble, you’ll still be able to make money out of it. And since you will be only investing 2% of your income, who cares if it all blows up in dust?
Avoid Multiple Credit Cards
Apart from that, you don’t have to use credit for anything.
Credit cards are a great way to spend money while earning reward points. However, banks like ICICI allow you to earn the same ratio of reward points when you use their debit card compared to beginner-level credit cards, for example, Coral Credit Card.
So there isn’t much big of a reason for you to use a credit card instead of a debit card. Simply spend 5% of your credit limit each month to keep your credit score high.
One credit card is enough to build a healthy credit score. Just make sure you keep your first credit card active for as long as possible.
Read More About Personal Finance
Read more. Even if you’ve read 10s of books on personal finance, read more.
Keep acquiring more knowledge about how to manage money without being a slave to it.
Stop reading books like “Rich Dad Poor Dad” and “Think and Grow Rich”. Countless so-called successful internet influencers mention these two books and how they changed their life.
But don’t buy it.
Avoid debt at all costs. There is no good debt or bad debt. You don’t need the stress of paying installments in your 20s. When someone says it’s part of the hustle, getting out of comfort zone and blah blah blah, smile, listen and don’t do it. It’s that simple.
Unless you absolutely need it, such as in the case of buying a house, don’t even think about it.
I’d suggest starting with “The Intelligent Investor” and remember the principles mentioned in this book as your fundamentals.
I’d also recommend reading “Coffee Can Investing”, “The Warren Buffet Way” and “I Will Teach You to be Rich” by Ramit Sethi. I don’t agree with about 60% of what Ramit says in his book, such as buying that $4 coffee every day, but he is exceptionally good at explaining automation and the importance of guilt-free spending.
Give it a go. Read any of these 4 books and then read the Think and Grow Rich or Rich Dad Poor Dad.
You’ll understand the reason why I detest books like Rich Dad Poor Dad.
That’s all for this one.
I hope you found one or two strategies you can use to save more money this year.