Saving money in your 20s will help you achieve financial stability. A lot of people in their 20s are dealing with student loan debt and aspiration for days of having a strong financial cushion and achieving their dream lifestyle. While it’s easy to think that financial planning may be pointless at this stage, the baby steps taken now will create a financial foundation. Increasing your income is most important, but spending less than you make is a close second. Increase your income, be smart with your spending, save money and invest are the recipe for success. Here are tips on how to save money in your 20s to set the stage for a strong financial future.

Increase Your Income

It’s not about what you make, it’s about what you spend is true. However, it’s a lot easier to save money when you make more money. Your lifetime earnings are decided in the first decade of your career. As a result, increasing your income in your 20s is especially important.

There are several ways to increase your income. First, hustle at your job and create a plan to double or triple your salary. This plan may include strategic networking to get promoted or switch industries, identifying what you need to do advance your career, get another degree and / or expand your skill set. Second, build additional streams of income. In order to begin generating passive income, you need to have money first. To build wealth quicker, start a side hustle in addition to your day job. As your income increases, keep your spending flat. This will allow you to save even more money in your 20s.

See Also: 10 Pieces of Career Advice for Young Professionals

Save Money In Your 20s by Being Frugal

Now that you’ve focused on making more money, how do you avoid spending your entire paycheck? Control your expenses. Do you make more money than your friends? Doesn’t matter, spend as if you make less. Consistent saving and investing, especially in your 20s, can be an effective way to accumulate wealth. The more you save in your 20s, the less you have to save later in life due to compounding. See how even small savings amounts can add up over time with this compounding interest calculator.

In your 20s, this means being frugal for a few years. You don’t have to be frugal forever. The longer you’re able to live frugally like you lived in college the easier your finances will be. Being frugal also doesn’t mean never having fun. You don’t have to cut back in all areas either, the single most important expense is housing.

Save Money On Housing And Live with Roommates

Some of the best ways to save money in your 20s include being smart with housing. Housing is likely the largest expense in your 20s. Once you sign a lease, you’re stuck with that expense until your lease ends. Don’t become “house poor.” Experts say housing should be no more than 30% of your gross income and that includes all housing expenses. However, this doesn’t mean you should spend 30% of your gross income. The less you spend on housing the more money you’ll have available to save, pay down debt and spend on other things you enjoy. Want to live in a certain location? You may have to settle on the amenities and living with roommates.

The most sure way to save money on housing is to live with roommates. Not only are you able to spend less per month on rent, you’re also able to split utility bills, and split buying the furniture. It’s expensive to furnish your first place. Splitting these costs will save you a ton of money the first few years and enable you to start building a savings cushion. Bringing your own lunch can save $7 / day or $140 / month. Being smart with your housing can save you hundreds a month and thousands a year.

Buy A Used Car or Skip The Car Altogether

The next biggest cost you’ll likely have is transportation. Sometimes, a car is unavoidable. You need it to get to your job and back. But, with remote working increasing, public transportation and rideshares becoming more available can you skip the car for a year or two for a little inconvenience?

Before you buy a car, do the math. Can you use public transportation, bikes and ride shares? How much will this cost you per month? Then, compare this to how much it’ll cost you to own a car. Don’t forget, the money you spend on a car could have been invested and earning you more money or paying down debt. Car expenses also include maintenance, gas, parking, insurance and depreciation. If you can, skip the car. If not, spend as little as you can on a car in your 20s. You can always get a nicer car when you have more money.

Save Money on Food and Drinks

There are ways save money on food and drink and still have fun. You can still go to restaurants and bars and save money in your 20s. Take advantage of happy hour specials. Go over a friends house and have a drink before heading to the bar. When you get to the bar, limit yourself to one drink. Invite people over to watch sports instead of going to a bar. Take advantage when there is free food at events. Bring your lunch. Set a monthly budget for eating out and going to bars. There are plenty of ways to continue to enjoy eating out and also save money.

Eat at home for all other meals and bring your lunch. Planning your meals and using coupons on groceries will save money. Don’t order takeout and instead save your eating out money for when you go out with friends.

Limiting spending on food and drinks is a great money move in your 20s because it starts developing discipline around spending money. It’s hard to say no to always going out with friends and spending money on food and drink but it adds up. But, this is small amounts of money compared to later on. If you can’t say no to going out to save money, how are you going to do when you’re invited on $1,000+ vacations? Practice saving money here and the discipline will spill over to other areas.

Be Frugal With Your Vacation Spending

The best time to travel is in your 20s when you have less responsibilities and more time. This is also when you have the least amount of money so how do you best balance this? Save money in your 20s by taking road trips. Rent a house with friends to reduce spending on lodging. Split a hotel room with 3 other friends to reduce costs even more. There are also plenty of ways to save money on travel, you don’t have to give up travel entirely.

Another option? Work for a global company and take advantage of traveling for your job. It’s much cheaper to spend 2 extra nights in Europe when you’re flying there for work than paying for an entire Europe trip. At minimum, sign up for every single travel loyalty program. This way, you can accumulate points to use for free nights, free airfare and free car rental days. You can also get a good rewards credit card and redeem for free travel.

Limit Spending on Clothing

When you first graduate college you will need to spend some money on clothing. Your college wardrobe won’t suffice for a professional wardrobe, attending weddings, etc. Spending money on clothes in unavoidable. You can continue wearing free t-shirts for a while at home, at the gym and on weekends but at some point you will want to upgrade there too. When you do spend money on clothing, take advantage of sales. Also take advantage of shopping second hand like on Poshmark and even sharing clothes with your roommates if you can. To start to build a wardrobe, buy 1-2 nice things a year like a good pair of black heels and a nice leather black tote.

Take Advantage of Company Benefits

Salary is important, but don’t forget about job benefits. Job benefits include vacation time, health insurance and 401(k) match benefits but did you know there may be more benefits to help you save money? In college you were able to get discounts with your college ID. Post college, look for ways to use your company ID to save money. Some health insurance plans offer money towards a gym membership every year. Depending on the industry and area, companies may offer free or discounted food, free gyms on-site, discounts on auto insurance, discounts on personal travel and more. Look at your internal company site to learn more about perks offered by your company.

Track, Manage and Reduce Your Spending

Now that you have those saving money tips, know how you are spending your money today. Can you use any of the tips above to save money? You must spend less than you make in order to save money in your 20s. To do this, you need to understand where you’re spending your money. When you just graduate, you’re adding a lot of new expenses. For the first few months, track every expense and see where you’re spending your money. Don’t change any behaviors, only add tracking what you spend and follow how you normally spend your money. At the end of the month look back at what you spent your money on. Do the same for the following month. Are you spending more or less money than you are making? Were all those purchases necessary? How did your spending change month to month?

Create a Budget

Saving money in your 20s starts with having a budget. Create a budget that works for you and isn’t too restrictive, otherwise you’re less likely to follow it. There are plenty of apps like Mint which make this process much easier. First, input your regular bills like rent, electricity, internet, etc. These are all of the bills you must pay. There may be ways to decrease these bills later, but for now put what you pay today. Set aside money for the things that bring you happiness and finally add in everything else. Be realistic too – you’ll need clothes and you’ll be invited to a lot of weddings in your 20s.

It’s ok if your budget is imbalanced when you first add everything together. Budgets take multiple iterations to get right. Keep shifting around numbers until you’re able to balance your budget. If you find that no matter how much shifting you can’t find ways to save money with your current income though then you need to start looking at ways to make more money.

Set a Savings Goal and a Retirement Savings Goal

You want to save money in your 20s, but how much? Give yourself a goal for how much you money you want to save per month. It doesn’t have to be a high number – you can start with even $5 a paycheck and increase it. Use this money to start building your emergency fund, so if any emergencies arise you have cash to cover it. You can find a calculator here to help identify how big your emergency fund should be. And, don’t forget to save enough money for retirement to get your employer match if they offer it at minimum. This graph from Business Insider shows the difference of saving $100 / month for retirement starting at 25 verse 35. The person who started at 25 ends up saving $73,000 more by age 65 solely by starting 10 years earlier. Only $12,000 of that difference is additional contributions, $61,000 is from compounding interest.

One trick to avoid cutting spending is to move more of your saving towards your 401(k) contributions. 401(k) contributions are pre-tax, so you’ll reduce the amount of taxes you owe in your budget. Once you’ve identified how much money you want to save, or can save, automate it! One of my favorite money saving hacks is to automate your savings. Take these steps to automate your savings and watch your savings grow.

Where Do You Put the Money You’ve Saved?

Where should you put the money you’ve saved? Money saved in your 20s should first be held in a high yield savings account as part of an emergency fund. Unfortunately, there have been interest rate cuts across the board including high yield savings accounts, so you won’t make much money here. But, it is better than nothing. Nerd Wallet shares here the top 10 best high yield savings accounts. You can also look for banks offering sign up bonuses.

See Also: How To Invest Money In Your 20s

How to Save Money in Your 20s Summary

How to save money in your 20s can be summed up in a few simple steps. Increase your income and keep your spending flat, saving the difference. Be frugal for a few years. This includes living with roommates and spending as little as possible on transportation. For all other expenses prioritize what brings you happiness and cut back spending in other areas. Set a savings goal and stick to it. Yes, saving money in your 20s is harder than saving money in your 30s. Your salary is lower and you don’t own much yet, increasing your initial expenses. But, your lifestyle expectations are also the lowest. The more you can save when you’re young the easier it is as that savings will continue to generate passive income for you. Set yourself up for success by saving money in your 20s.

Here are more smart money moves to make in your 20s.