As a Gen Zer entering the workforce, it’s crucial to have a strong understanding of money management and how to stretch your dollar a little further.
With student loan debt and stagnant salaries affecting so many, it’s not uncommon to assume that saving money is next to impossible. But with the right habits, you can save enough money for a more secure financial future.
Here are seven frugal habits that will help your savings reach $50,000 quicker than you thought was possible.
Create a Budget and Stick to It
You may not make much money when you’re just starting out in the workforce, and you probably have a lot of new expenses that you may not have had in college. We’re talking things like student loans, rent, bills, groceries, gas, and entertainment. This is where a budget can be useful.
By creating a budget, you’ll better understand your monthly spending and what you can afford. If you spend more than you make, changes will need to be made. You can either spend less or find a way to make more through a raise at work or a side hustle.
“Put a practical budget in place and keep it simple so you can easily stay on top of your finances and increase your odds of success,” said Kendall Meade, financial planner at SoFi. “One of the most simple and effective budgets is the 50/30/20 rule. With this rule, you should be spending 50% on essential expenses (rent/mortgage, insurance, minimum debt payments, etc.), 30% on discretionary expenses (dining out, entertainment, etc.), and 20% towards your goals (retirement, emergency funds, investing, etc.).
Take advantage of tools you can use to stretch your budget each day. Store loyalty programs, cash-back apps such as Upside, and digital coupons are all simple ways to cut down on routine spending.
Meade said even a basic budget can help you reach your financial goals, whether those goals entail building a financial cushion, putting a down payment on a new home, taking a dream vacation, or all of the above.
Implement a Purchase Waiting Period
Another frugal habit that can help you stick to your budget is to implement a purchase waiting period. This is when you force yourself to wait a certain amount of time before purchasing something you want.
“One of the biggest factors that can hurt your budget is impulse purchases,” said Meade. “This becomes even easier in today’s age where you can shop from your phone and have it delivered to you almost instantly. I recommend implementing a waiting period to help avoid impulse purchases. This can be 24 hours, or for bigger purchases, you may want to wait even longer — like a week.”
If you still want the item after the waiting period, go ahead and make the purchase. But you may find that you no longer want the item as much as you initially thought you did.
Inquire About Student Loan Repayment Assistance With Your Employer
Some employers offer student loan repayment assistance benefits. These can come in several forms, including debt payment counseling or education, granting access to 401(k) loans, direct student loan payment help, or additional 401(k) contributions to employees paying off student debt.
Some companies will match employees’ student loan payments, typically up to a certain percentage of your pay, up to a maximum amount. That amount will then be deposited into your retirement plan. This helps employees who are focused on paying off student loan debt but also want to work on building their retirement savings.
Take Advantage of Your Company’s 401(k) Match
A 401(k) is a retirement savings plan offered by employers. When you contribute to your 401(k), pre-tax money from your paycheck will be automatically withdrawn and invested. If the money stays in the 401(k) account, you won’t have to pay taxes on investment growth, interest, or dividends. However, when it comes time to withdraw money from your 401(k) account in retirement, those distributions will be taxed as income.
Many employers will match a portion of what you contribute to your 401(k), usually up to a certain percentage. You’re throwing away free money if you’re not taking advantage of this employer match. If you can afford it, increasing your 401(k) contribution may help you save even more for retirement.
Open and Contribute to a Roth IRA
If you don’t have a 401(k) — or even if you do — you can open and contribute to other retirement accounts, such as a Roth IRA. A Roth IRA is a retirement account where you contribute after-tax dollars, then withdraw funds tax-free when you retire.
If the account has been open for at least five years, you can withdraw from your Roth IRA tax-free after age 59.5. You can’t contribute to a Roth IRA if you earned more than $153,000 in 2023 as a single filer or $228,000 as a couple filing jointly. Therefore, Roth IRAs are great options for Gen Zers starting out in the workforce.
Always Have an Emergency Fund (and Keep It in a High-Yield Savings Account)
One of the most important things you can do is start an emergency fund. This money will help you cover the cost of unexpected expenses or a job loss, helping you avoid debt. You should work toward having at least three to six months of living expenses in your emergency fund.
Your emergency fund should be put someplace that allows you to access it quickly. Most people choose to use a high-yield savings account because these accounts will allow your money to grow faster.
Don’t Allow for Lifestyle Creep
As you earn more money over time, you may be tempted to use that extra income to buy nicer things or experiences. This is known as lifestyle creep. However, there are a few downsides that need to be considered.
If you’re not using that extra income for savings or investments, you are missing out on future money from compounding interest. Instead, prioritize savings before “treating yourself.”
“Gen Zs should divert 25-50% of any raise or salary increase they get to savings or investments from the very first paycheck the increase is in effect,” said Mike Hunsberger, owner of Next Mission Financial Planning. “They won’t miss the money because they haven’t gotten used to living on it, but they can still use the other 50-75% of the increase to improve their lifestyle. If they do this regularly, they’ll be amazed at how much they save in just a few short years.”
The other issue is that if your income decreases in the future, such as with unemployment or in retirement, it may be difficult to cut back, and you may begin to live above your means.
The Bottom Line
As a young Gen Zer, it’s never too early to start practicing good financial behaviors. Implementing these frugal habits can help you reach your savings goal of $50,000 or more.
