5 Savings Goals to Achieve in Your 20s

Man in his 20s creating savings goals with a laptop and scattered paperwork
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In your 20s, you establish habits that will follow you throughout your life.

This is the life stage when you might establish your career, get married, or even prepare to start a family, which makes it even more important to set goals for yourself and start saving. In short, if you adopt good financial habits in your 20s, you will be in a much better place financially in the future. 

There are five savings goals in particular that you should strive for in your 20s.

Build an Emergency Fund

One of the most important savings goals in your 20s is to start an emergency fund, which is a pool of money that you earmark for unplanned expenses.

When unexpected life events occur, the fund acts as an insurance policy for your finances; for example, if you have a medical emergency or a sudden job loss or appliance breakdown, you can pay for it using money in your emergency fund so that you don't have to dip into your savings or go into debt.

The amount you save in your 20s will be determined by the stability of your job, your income, any debts you may have, and whether you are a single- or double-income household. Your ultimate goal should be to save an emergency fund amounting to three to six months' worth of living expenses. But when you first start budgeting, establish a conservative savings goal to allot at least 2% of every paycheck to your emergency fund for six months. Then, increase that amount by 1% to 2% every six months to one year to build your emergency fund over time.

Remember, your emergency fund should be fairly easy to access, so keep it in a liquid, low-risk investment vehicle, such as a savings account or a money market account.

Some experts recommend saving a fund of three to six months of take-home pay rather than expenses; if you have the ability to save aggressively, this strategy can provide an even more bullet-proof financial safety net in times of need.

Make Your Down Payment a Savings Goal

Another financial objective you should work toward in your 20s is to set aside money for a down payment on your first home. The down payment is a portion of the purchase price that you pay up front on a home at the time of closing.

A down payment isn't an insignificant sum—it usually amounts to at least 20% of the purchase price. But the larger the down payment, the lower your mortgage payments can be, and likely the bigger and the more amenity-packed house you can afford. Putting down a reasonable down payment can also avoid the need for private mortgage insurance, which you usually pay for in the form of a monthly premium that gets tacked on to your mortgage payment.

For all these reasons, it's useful to start saving for a down payment even if you don't plan to purchase 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.

Contribute to Your Retirement

The key to having enough money to retire is to establish a savings goal to put aside money in a retirement account 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.

You may start by contributing up to your employer’s match until you are out of debt. Then, shoot for annually contributing 15% of your income to a retirement account like a 401(k) or a traditional or Roth Individual Retirement Arrangement (IRA) every year. This assumes that you need 55% to 80% of your current income in retirement; you might want to save more or less aggressively depending on your targeted income in retirement.

To keep yourself on track with your retirement goals, reference retirement savings benchmarks. For example, a common retirement benchmark based on your age and income stipulates that you should have the equivalent of a years' worth of salary in retirement at age 30.

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.

Start Investing

If you want to build wealth outside of your retirement accounts, consider investing some money you would have otherwise put into a low-interest savings or money market account. As is the case for saving for retirement, compounding interest will help grow your invested money more quickly, and the sooner you start, the better off you’ll be.

You can choose to invest with the help of a financial adviser, who can recommend investment types and help you build an investment portfolio. If you understand the basics of the stock market, you may opt to open a taxable brokerage account with a reputable online brokerage firm and invest in stocks, bonds, mutual funds, and other securities.

The keys to successful investing are to hold a mix of assets (stocks, bonds, and cash, for example) and to diversify or spread your money across different investments by buying the stock of different companies spanning different industries. While the nature of investing is such that you should only invest money you're willing to lose, asset allocation and diversification can, together, minimize your risk and limit your potential losses.

To implement these strategies, it's important to evaluate the risks associated with each type of investment. For example, stocks are generally the riskiest in the short term, so you might also want to move to more conservative investments like bonds or cash as you get older.

Establish the Habit of Saving Money

Another important goal to adopt in your 20s is spending less money every day. You don't necessarily have to deprive yourself to do so, either. You might set up a budget, start to shop at more affordable grocery and clothing stores, take advantage of coupons, and wait for items (or even gasoline at the local pump) to go on sale, for example.

You can also look for ways to reduce larger recurring expenses so that you have more money in your pocket to put toward your savings and investing goals and will be less likely to rack up excessive amounts of debt. For example, once you create a budget, you can cut or eliminate spending on budget-busters such as dining out or a seldom-used gym membership if you start to cook more at home or exercise outdoors.

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

Updated by Rachel Morgan Cautero.