Introduction

Your 20s can be thrilling, but they can also be stressful, especially when managing finances. As prices in cities like Mumbai, Kolkata, or Bengaluru continue to increase, along with student loans, and the need for experiences, establishing sound financial habits can be essential. Considering financial habits in your twenties sets you up for a lifetime of economic stability. Whether saving for a vacation, a new bike, or preparing for bigger financial commitments like purchasing a home, budgeting in your twenties is important.

This article will offer steps to encourage young adults to take charge of their finances, including a breakdown of the zero-based budget method and instructions for budgeting.

Why Budgeting in Your 20s is Important?

Your 20s are often a time of transition. You may start your first career post-university, move out of your parents' house, or pursue a master's degree. When you become financially independent, you accept significant financial responsibilities. Properly creating and following a budget allows you to avoid getting trapped in debt, have money in savings, and invest early and often to take advantage of compounding. For example, if you start an SIP at 25, the growth of your account will be completely different compared to starting at 40. Developing a budget also offers you security if life throws you a curveball, as we have all seen in a gig economy. You may find yourself moving jobs, getting laid off, incurring unforeseen medical expenses, etc.

Track Your Income: Start by calculating your monthly income, such as your salary, freelance work, or parental contributions.

List Your Expenses: Make a list of your expenses, ranging from things like rent and groceries to subscriptions like Netflix or your gym membership. Use apps like Walnut or Moneycontrol to keep track of your spending habits.

Categorise Your Spending: Sort your expenses into three categories: needs (rent, utilities), wants (eating out, shopping), and savings/investments. Knowing how to prioritise your essentials will help you budget.

Set Your Goals: Write down your short-term goals, such as saving ₹20,000 for a gadget, and your long-term goals, such as ₹5 lakh for a down payment on a home. Assign timelines to your goals so you're motivated to achieve them.

Choose Your Budgeting Method: Decide on a budget system that works best for you; it may be the 50/30/20 rule (50% for needs, 30% for wants, 20% for savings) or a zero-based budget (which will be explained below).

Review Your Budget: Remember that not all months are the same, and you may want to adjust your budget because you received a bonus during the Diwali festival, or your rent went up.

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Explaining Zero-Based Budgeting

A zero-based budget is when you plan for every rupee you earn with the goal that every rupee you earn has a purpose. In other words, if you are making ₹40,000 a month, you will plan how you will spend or save every rupee, so that your income minus your spend equals zero. For example, you could spend:

• ₹20,000 for needs (rent, groceries, transportation)

• ₹12,000 on wants (movies, eating out)

• ₹6,000 in savings (emergency fund, SIP)

• ₹2,000 in debt repayment (i.e. education loan)

This "zero-based" budgeting forces you to prioritise spending and avoid wasting money. Allocating every rupee could be just what you need to keep you on track. Here is a simple process: write down all your expenses (every category), then allocate funds to each category to balance your budget at zero! You could also use software to assist you, and there are apps to help. I like YNAB (You Need a Budget).

Practical tips to prepare you to create your budget

Establish an Emergency Fund: Budget to save at least 3- 6 months of expenses (i.e. if you spend ₹20,000 a month, save between ₹60,000- 1,20,000 to have an emergency fund). Establish a high-interest savings account or a liquid mutual fund for your emergency fund.

Pay down Debt with a plan: Pay down debt (student, credit card, personal loan) starting with your highest interest loans. You want to pay your highest percentage interest loans first (pay down the 15% interest credit card before you pay down the 6% education loan).

Invest Early: Start with SIPs (Systematic Investment Plans) in mutual funds (as little as ₹500/month) or start a Recurring Deposit. They are easy to use and can be done on investment platforms.

Automate your savings: Open a savings account or an investment platform with Auto-Transfer and set the amount you want to save as soon as you are paid, so you won't be tempted to spend.

Reduce unnecessary expenditure: Review subscriptions and cancel any you don't use, like double subscriptions to the same streaming service. Food delivery apps can cost more than cooking at home once a week.

Conclusion

Budgeting in your 20s is about establishing behaviours that allow you to get on the path to achieving financial freedom. If you learn to make a budget and consider ways to budget like zero-based budgeting for low money, you are on your way to taking control of your financial future. Start slow, be consistent, and review how you're feeling often. Despite your circumstances and income, your 20s can be potentially years of establishing a foundation for you to create a future with security and freedom. Consider talking to a financial planner if you want to speak to someone in person.

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