As anyone who’s ever been hit with an unexpected bill or wanted to buy something expensive will tell you, having money in savings — or an emergency fund, as the case may be — is essential. But while most people can agree on that, actually being able to save up a large sum of cash isn’t always so easy to do.
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Despite this, some people in Gen Z have pretty high savings aspirations. According to a GOBankingRates survey, almost 15% of respondents aged 18 to 24 believe they can realistically save up at least $20,000 in the next year, while 22% think they can save between $10,001 and $20,000.
While saving $20,000 in 12 months might seem like a lofty goal, it’s not impossible. Here’s how realistic it is for Gen Z, and how to save up that kind of money in such a short time.
Saving $20k in a Year Could Be Tricky
“Saving $20,000 over the next 12 months requires setting aside approximately $1,666 per month,” said Jay Zigmont, PhD, CFP and Founder of Childfree Wealth. “With a large percentage of the U.S. living paycheck to paycheck, it is unrealistic to say they will have a place to find $1,666 per month left over in their budget.”
Natalie Warb, financial expert at CouponBirds, added that it could be a major challenge for Gen Z to save this much money in such a short time.
“This goal would require strict savings habits and a considerable portion of one’s income dedicated to savings,” said Warb. “Although it may be attainable for individuals with high incomes and minimal expenses, it would generally be more feasible with a longer savings timeline.”
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Gen Z May Want To Focus on Paying Off Debt First
Although saving up $20,000 in a year is a great goal, it might be wiser to pay off any existing debt first. This, of course, depends on the individual and the type of debt. But in general, high-interest debts like credit cards, student loans or auto loans should be paid off before anything else.
“For much of Gen Z, their initial focus should be in paying down their debt rather than putting money in a savings account,” said Zigmont. “The key is to set an achievable target and run your own race. If all you can do is pay down an extra $250-$500 per month of your debt, celebrate that rather than focusing on saving an arbitrary amount such as $20,000 in a year.”
Jena Gruenebaum, director of client advocacy at Marygold & Co., added, “Be mindful of debt. Minimize the accumulation of debt, such as credit card debt or high-interest loans. If you have existing debts, focus on paying them off strategically and avoid taking on new debts whenever possible.”
Saving $20k Requires a Plan and Budget
With any financial goal, but especially a big one like this, it’s important to set small, achievable goals first. Otherwise, it might not be possible to save $20,000 in a year’s time.
“Set clear goals,” said Gruenebaum. “Start by defining what you are saving for, such as emergencies, education, a pet, a car or even a down payment on a house. Having specific goals will help you stay motivated and focused.”
Gen Z will also need to have a realistic budget that makes this savings goal attainable.
“Track your income and expenses to understand how much money you have coming in and how much you’re spending. This will help you identify areas where you can cut back and save more,” said Gruenebaum. “Make saving a priority by setting aside a fixed amount each month… Keep a record of your savings and track your progress toward your goals. This will provide a sense of accomplishment as you see your savings grow over time.”
Cutting Back on Spending Could Be Vital
It goes without saying that spending less can make it easier to save more, but there are different ways to go about this. One way is to review your income, expenses and spending habits.
“Minimize unnecessary expenses,” said Gruenebaum. “Distinguish between your needs and wants. Try to minimize unnecessary expenses like eating out, impulse purchases or subscription services you rarely use.”
Also, keep records of your finances, as this can help you identify your money habits and find more ways to save. “Use accounting software to track every income and expense, and categorize major expenses to identify areas where budgets can be reduced,” said Warb.
Gen Z Can Start By Saving 10% of Their Income
“A general rule of thumb is to plan to save around 10% of your income each month or year. However, setting a dollar amount goal, like saving $20,000 in a year’s time, may require good planning and prioritizing,” said Holley G. Cary, CFP, vice president and senior financial planner at First Horizon Bank. “For many of us, $20,000 is more than 10% of our income, so we must come up with realistic ways to adjust the spending plan to meet the savings goal.”
For Gen Z, Cary advised breaking down your monthly income to see what 10% of that number would be. You can then multiply the result by 12 to calculate how much you could save in a year. If the number is too low, you may need to make some changes to your income, expenses or savings goal.
Automating Savings Contributions Could Help
Dr. Chris Courtney, a cognitive neuroscientist and senior vice president of science, risk and analytics for Happy Money, suggested automating savings contributions to make achieving this goal easier.
“Automating your savings can help you stay motivated, as it takes some of the decision-making effort out of the process,” Courtney said. “Setting a percentage of your paycheck to go directly into your savings account is one of the best proven strategies for consistency in achieving your financial goals. It’s far easier to stick to a goal that doesn’t rely on you remembering to perform a behavior.”
View this monthly savings contribution as “a non-negotiable fixed expense in your spending planning,” added Cary. This will also help you save the amount you want in your preferred timeframe.
For Gen Zers who currently have a traditional savings account, switching to a high-yield savings account could also be a good idea. “Consider opening a high-yield savings account or exploring other investment options that align with your risk tolerance and long-term goals,” suggested Gruenebaum. “Research and understand the options available to make informed decisions.”
Finding Ways To Earn More Money Could Be Necessary
Another way to make saving $20,000 in only a year more attainable is to increase your income.
“If time is more abundant than cash flow, find a side hustle or a gig job with the goal of saving that extra income and living off the income from your primary work,” said Cary.
“Take advantage of the gig economy and remote work opportunities to supplement your main income,” added Warb. “Social platforms can also provide avenues for generating additional income.”
Bottom Line
Ultimately, the ability to save up $20,000 in a year depends on the individual’s own circumstances and financial situation. The initial goal should be to start saving as much money as is reasonable, and then to increase that savings goal gradually or whenever it makes sense to do so.
Even if you fall short of your initial goal, take pride in what you’ve accomplished so far, as this can help keep you motivated to continue saving more money.
“Celebrate your progress,” said Courtney. “When you beat yourself up for not saving a certain amount, you’re providing negative feedback, which affects how you feel about saving in the future. This is similar to fad diets and why people tend to quit trying to get in shape — they create negativity around the wanted behavior, which doesn’t lead to the desired goal or positive lifestyle. Instead, picture your future self and how much they’ll appreciate the savings you’re building over time.”
Methodology: GOBankingRates surveyed 1,037 Americans aged 18 and older from across the country between Sept. 5 and Sept. 7, 2023, asking five different questions: (1) How much money do you hope to save in the next year?; (2) What are you saving money for?; (3) How many savings accounts do you have?; (4) What is the primary method you use to save money?; and (5) What is your biggest roadblock/challenge in trying to save money?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
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This article originally appeared on GOBankingRates.com: Gen Z’s Lofty Savings Goals: Nearly 15% Hope To Save Over $20k This Year
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