Save your first

— or NEXT


Get our free weekly newsletter and MoneySchool: Our FREE 7-day course that will help you make immediate progress on the money goals you’re working toward right now.

No, thanks
Subscribe now

Budgeting In Your 20s: Why And How To Get Started

You can trust the integrity of our balanced, independent financial advice. We may, however, receive compensation from the issuers of some products mentioned in this article. Opinions are the author's alone, and this content has not been provided by, reviewed, approved or endorsed by any advertiser.

With the right framework and the right tools, it’s easy to keep your finances in check. Here’s how to start budgeting in your 20s.

Table of contents

    You finally have financial independence. You can spend your money on the things you want, and that’s exciting. But with that freedom comes more serious questions, like:

    Am I spending too much a month? Am I doing this right? Should I be saving? Do I have to feel guilty every time I buy a fancy cocktail?

    Creating a budget helps answer those questions, and more. Believe it or not, giving yourself a financial framework actually grants you more flexibility, more money to spend and fewer anxieties to worry about.

    Why you should start budgeting in your 20s

    Saving early means earning more out of every dollar

    It doesn’t matter how big or small your paycheck is. The earlier you start saving, the more you’ll earn later on. This is because of a little something called compound interest.

    Here’s the idea: When you invest your money early, you don’t just earn interest on that investment, but over time you also earn interest on your interest. The more time you let your investment grow, the more you squeeze out of each dollar.

    Here’s a simple example

    At 22 years old, Bill invests $200 into a mutual fund that offers a five percent return. He continues investing $200 every month and by the time he turns 65 years old, his investment earns him $363,945.99.

    Let’s compare this to George, who follows the same investment plan, but starts at 30 years old. When George turns 65, his investment is only worth $228,365.23. Those eight measly years that Bill had on George helped him earn a whopping $135,580.76 more.

    The key is to give your money time to maximize interest. You don’t have to start big. You just have to start.

    Budgeting prepares you for future “adulting”

    Captain Obvious Quote of the Day: Don’t start saving for a home at the exact time you want to buy a home. You may not be thinking about diapers and home ownership, but you might later on. Starting to save earlier means giving yourself a smaller financial burden when that time comes. It’s also important to learn how to stick to a budget so that you’ll be set for when your finances become a little more complicated.

    Afford the lifestyle you want. Now.

    Your twenties are the best time to do the things you want to do when you’re still young and free of major responsibilities. With a spending plan, you’d be surprised at how much you can squeeze out of your income.

    Tracking your spending helps identify areas for improvement so that you can spend less on things you don’t need and put that money towards something better. Like that sweet trip to Spain you’ve been thinking about.

    Go debt-free faster

    Get rid of that looming debt anxiety for good. Budgets make it easier to pay off your debt without putting stress on your paycheck. You can check off that list much sooner by making it a routine to save a little bit every month.

     Less stress when dealing with unplanned expenses

    Life happens. And that means: emergency dental appointments, car problems, a leak in your roof—you get the idea. Budgets help make sure you always have extra funds cached for those unexpected incidents.

    You shouldn’t have to waste money on high-interest loans or awkwardly grovel to your parents or friends. No one wants to see that.

    How do I start budgeting?

    Budgeting is important, but it doesn’t have to be complicated. Get your budget started with these six simple steps.

    Figure out your monthly income

    Gather all your income sources into one place. How much are you taking home a month after taxes?

    • If you get paid every other week: Multiply your paycheck by 2.166
    • If you get paid weekly: Multiply your paycheck by 4.333
    • If your income fluctuates: You can average several months of income. Just try to be as conservative as possible.

    Track and categorize your average monthly spending

    Keep it simple. Start with last month’s total expenses. Gather all your bills and receipts and figure out how much you’re actually spending per month.

    Break down your spending into categories that make sense for you. For example: Living expenses, transportation, subscriptions (like Spotify or Netflix), groceries, medical, debt payments, entertainment. This helps identify unexpected areas that may be hemorrhaging money.

    Set a goal

    Getting on the right financial track is a great objective, but it’s important to work towards something concrete. This helps motivate us to be diligent and consistent with our budgeting.

    What if I don’t have a goal?

    Make one. A great first goal is creating an emergency fund for unplanned expenses.

    Some other possible goals:

    • Short-term goals: Saving for a trip or a new couch
    • Medium-term goals: Saving for a car, becoming debt-free
    • Long-term goals: Saving for retirement or paying off your mortgage

    Set your financial framework

    Start by weighing your expenses against your net monthly income. How much wiggle room do you have? What are your goals? What spending categories can use improvement?

    Start setting ideal budget goals for each category. Be honest with yourself and your lifestyle. If you enjoy going out for dinners or drinks with friends, include that in the budget as well.

    You can use this simple budget worksheet to keep track of spending.

    Overwhelmed yet? That’s okay. There are tons of tools designed to make it easy to create and manage your ideal budget. Later on, we’ll explore some popular ones

    Tweak. Repeat.

    Keep in mind that our spending habits and income change. Make sure to adjust your budget accordingly. Also make sure that your budget is actually sustainable. If you’re finding it difficult to stay within that framework, then change it. Be realistic with yourself.

    Budgeting resources: What can I use to make budgeting work for me?

    Put down that Excel Spreadsheets for Dummies. There are tons of resources for any type of budgeter—whether you want to do it all yourself, or leave it to the professionals. Try as many as you want until you find one that sticks. Remember, it’s all about what works best for you.

    Budgeting methods

    The 50-30-20 Budgeting Method

    The 50-30-20 Method is a helpful place to start for budgeting newbies. Avoid convoluted spending categories. Simply divide your budget three ways: 50 percent towards living expenses and essentials (i.e. rent, groceries, utilities), 30 percent towards flexible lifestyle spending (i.e. entertainment, eating out, travel) and 20 percent towards your financial goals (i.e. savings, debt payments, investments).

    Rather than giving up your social life, the 50-30-20 Rule gives you a whole 30 percent of your budget to spend as you please.

    Good for:

    • Budgeting beginners
    • People who want budgeting flexibility

    Envelope Method

    The Envelope Method is this: Store your allotted budget in the form of cash inside dedicated envelopes for each spending category. It’s a pretty old school method, but a great option for people who want to set stricter limits for themselves.

    Good for:

    • Those who prefer using cash to credit or debit
    • People who need more financial boundaries

    Bullet journals

    Bullet journaling has become a really popular way of organizing life and staying on top of tasks and goals. It’s now being used as a budgeting tool, too. Bullet journals are hyper-organized and personalized log books, which are regularly updated by you. Writing down goals or reminders can hold more weight for people than just typing them out or passively relying on an app.

    Good for:

    • People who like to physical write down their tasks
    • People who want total control of their budgeting

    Budgeting tools


    If Mint was a smart phone, it would be an Apple—super easy to use, not much customization, but perfect for those who don’t want to deal with the nitty gritty.

    Mint is a financial manager app that syncs perfectly with your banking, credit, and investment accounts to categorize and track your purchases. It also helps create budgets and alerts you when you exceed your budget limit. Plus, it’s free (If you’re okay with some pesky pop-ups).

    Good for:

    • The “set it and forget it” types
    • People looking for simplicity

    You Need a Budget (YNAB)

    Like Mint, YNAB is a personal finance management app that syncs with your banking and credit accounts. But unlike Mint, the main focus of YNAB is on creating and readjusting your budget so it works as your needs change. It’s based on these four principles:

    • Give every dollar a job
    • Embrace your true expenses
    • Roll with the punches
    • Spend money that’s at least 30 days old

    While this service costs $6.99/month, many YNAB devotees swear by it.

    Good for:

    • People who want to revolutionize their finances
    • People who want a highly involved system that adjusts with your life


    It’s the Envelope Method made for the digital world. Assign monthly allowances to different digital envelopes. Mvelopes sets aside your money into these assigned accounts only to be spent on pre-determined items.

    Mvelopes also works to better our financial habits—offering helpful learning resources and access to a personal finance trainer. Mvelopes offers a tiered pricing system:

    • Mvelopes Basic: $4/month or $40/year
    • Mvelopes Plus: $19/month or $190/year
    • Mvelopes Complete: $59/month, $149/quarter, or $549/year

    Good for:

    • Those who like the envelope method
    • People who need more financial boundaries


    Like Mint, Wally is a simple app for tracking expenses that’s convenient and easy to use. Unlike Mint, Wally doesn’t sync with your bank accounts. Instead, it offers an easier alternative to manually tracking expenses. Take photos of your receipts and upload them easily to specific spending categories. Wally is 100 percent free.

    Good for:

    • People who still want some control in consolidating their finances
    • People who don’t want to give away their banking info


    PocketGuard is another smart budgeting app. It connects all of your finance accounts, and illustrates your financial information in a highly digestible way.

    The app takes your spending habits and income and creates a personalized budget for you. This is also a great tool for identifying areas for improvement. It helps you plan for upcoming expenses and notifies you of unexpected charges or bank fees.

    PocketGuard is $3.99/ month for a monthly subscription and $34.99/ year for an annual subscription.

    Good for:

    • People who want to optimize their spending
    • People who want to visualize their budget in a simple way

    How you can use credit cards to budget

    Tracking and charting all of your expenses can get overwhelming, but luckily, most credit cards do that for you automatically. Credit cards offer great budgeting resources. They keep track of your expenses on an ongoing basis and organize your spending into different categories. Plus, you can loosen that budget even more by earning rewards on every dollar you spend.

    Here are a few of my favorites:

    Best cash back rewards card: Discover it® Cash Back

    Discover it® Cash Back

    Credit Needed: Excellent, Good
    • INTRO OFFER: Discover will match ALL the cash back you've earned at the end of your first year, automatically. There's no signing up. And no limit to how much is matched.
    • Earn 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com and more up to the quarterly maximum, each time you activate.
    • Plus, earn unlimited 1% cash back on all other purchases - automatically.
    Intro APR
    Intro Term
    Intro APR
    Balance Transfers
    Intro Term
    Balance Transfers
    Regular APRAnnual Fee
    0%14 months0%14 months14.24% - 25.24% Variable$0

    See card details/apply or read our full Discover it® Cash Back review.

    Best travel rewards card: Chase Sapphire Preferred® Card

    Chase Sapphire Preferred® Card

    Credit Needed: Excellent Credit
    • Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $625 toward travel when you redeem through Chase Ultimate Rewards®
    • Chase Sapphire Preferred named "Best Credit Card for Flexible Travel Redemption" - Kiplinger's Personal Finance, June 2018
    • 2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases.
    Intro APR
    Intro Term
    Intro APR
    Balance Transfers
    Intro Term
    Balance Transfers
    Regular APRAnnual Fee
    N/AN/AN/AN/A18.24% - 25.24% Variable$0 Intro for the First Year, then $95

    See card details/apply or read our full Chase Sapphire Preferred® Card review

    Best card for pretty good credit: Capital One® QuicksilverOne® Cash Rewards Credit Card

    This offer requires Average/Fair/Limited credit.

    See card details/apply or read our full Capital One® QuicksilverOne® Cash Rewards Credit Card review

    Best card for low or no credit: Discover it® Secured

    Discover it® Secured

    Credit Needed: Please refer to issuer's website
    • No Annual Fee, earn cash back, and build your credit with responsible use.
    • It’s a real credit card. You can build a credit history with the three major credit bureaus. Generally, debit and prepaid cards can't help you build a credit history.
    • Establish your credit line by providing a refundable security deposit from $200-$2500 after being approved. Bank information must be provided when submitting your deposit.
    Intro APR
    Intro Term
    Intro APR
    Balance Transfers
    Intro Term
    Balance Transfers
    Regular APRAnnual Fee
    N/AN/A10.99%6 months25.24% Variable$0

    See card details/apply or read our full Discover it® Secured review

    Single card tracking

    A great option for novices and experts alike is to limit your purchases to just one payment source. It comes with many benefits, but can especially be useful if you get flustered trying to manage all your bills, credit cards and debit cards. Instead, you just need to keep track of one card. You also reduce the number of bills you need to think about every month.

    As I mentioned, most credit and debit cards have amazing built-in tracking systems that organize your spending into charts. By using just one card, you can use these services as they were intended, without having to consolidate with data from other cards. And if you’re using a credit card as your primary payment method, you’ll earn rewards much quicker.

    Good for:

    • People who have trouble managing many different payment methods
    • People who want simpler finances
    • Rewards-conscious people


    This list only skims the surface of the many finance tools designed to help you succeed. With the right framework and the right tools, it’s easy to keep your finances in check. And that means less worrying and more money for the things you want. It’s pretty much a no-brainer. So what are you waiting for?

    Read more

    Save or share! Email this page »


    We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 36.

      Leave a Reply

      Your email address will not be published. Required fields are marked *