How Much Money Should You Save During Your Teens, 20s, and 30s?

Well, it depends.

In Your Teens & 20s

In your teens and 20s, you shouldn’t need much to survive. Especially if you’re still living with your parents, or with roommates once you’re on your own. Tuck away as much as you can. Even if it doesn’t feel like a ton.

Start with an emergency fund. This is for legitimate emergencies, like a flat tire. Aim for $1,000.

Then start what I like to call an “Opportunity Fund”. This is basically your fund for investing in yourself, your education, your development, your life. Maybe you use it for school. Maybe you use it to buy books or go to seminars or conferences. Maybe you use it to travel the world. But it’s there for you to invest in yourself.

Aim to put $5,000 — $10,000 in your opportunity fund before you graduate high school if you can.

Once you’re out in the real world, on your own, try to keep your opportunity fund replenished. Your uses may change as you get older. Maybe you use it to start a business or invest or as a down payment on your first house or rental property.

Keeping your emergency fund and an opportunity fund are both really good fundamentals for enabling you to say “Yes” to future opportunities you don’t know about today.

While your cost of living is low, don’t worry so much about the %, just save as much as you can.

In Your Late 20s-30s

As you get older, your expenses will probably increase.

Maybe you start your career and move to a new city. Rent increases. Maybe you get married. Have kids. Get a house. Etc. More $ out of your income directed toward your cost of living means fewer dollars to save.

The best thing you can do is focus on continuing to increase your earning potential. That way, even as your expenses go up, your increased earnings can continue to outpace increases in your cost of living.

The best ways to increase your earning potential are by 1) developing your skills 2) getting more useful experience 3) starting your own business 4) gaining credibility in your field 5) growing your network.

Most of those will take time and money to do. It’s money and time well-spent.

If you can do that in your 20s, your 30s and beyond will be easier. Because you’ll put yourself in a position to continue increasing your earnings — even if your expenses also increase some.

This is also a good time to practice developing discipline. As your cost of living goes up, so will the complexity of your household economy. You’ll have more bills to track. More ways for your money to leave your bank account.

Getting disciplined with keeping a budget and setting more concrete savings/investing thresholds will help you keep gaining ground financially.

Most conventional advice will suggest something like a 50/30/20 rule: 50% of your pay goes to needs, 30% goes to wants, and 20% for savings.

That’s a good rule of thumb. But adapt it to your situation. If you can get by on less than 80%, save more. The more you save, the more you accelerate your financial plan.

Some months you’ll be able to save more. Some months you’ll need to spend more.

Set some realistic guardrails for yourself, but adapt your plan to your goals and situation.

Just remember, the easiest way to win the savings game is by continuing to grow your income.

30s and Beyond

If you do everything right in your teens and 20s, the rest of the journey will be incrementally easier. It’s always easier to work from a strong foundation.

But if you’re playing catch up, then work backwards. Try to figure out what you’ll need to survive in your older years — and factor in life expectancy. (How long did your parents and grandparents live? Add a few years for yourself.)

There are countless investment strategies to help your work backwards. You can look at target date funds. You can use market averages, then dump money into index or mutual funds and hope the market performs. Then use modeling strategies like the 4% rule to understand your safe withdrawal rate in retirement.

Doing that kind of modeling will help you anticipate what you might need to save in order to be able to fund your lifestyle in the future.

But of course, it’s not a perfect science. You can’t predict the market. You can’t guarantee performance. (Of course, there are more involved asset classes, like real estate or business ownership that might help you increase your odds of success, too. But that’s for a future post.)

All you can do is prepare the best you can, given the time you have, and hope the market outperforms.

That’s why it’s easier the earlier you start.

Best of luck on your financial journey.