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Budgeting in your 20s can be tricky. For many, knowing how to budget money in your 20s is a struggle because they’re often living payday to payday with entry-level incomes and a load of new financial independence, without much education around money. But learning how to budget in your 20s can give you a massive head start. 

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8 things to include in your budget plans

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1. Work out your income and expenses

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The first step in budgeting for 20-somethings is to work out what money you have coming in and going out every month. Make sure you include all your income, like part-time jobs or side hustles. Then, list all your monthly expenses, like rent, energy bills, food shopping, and entertainment. 

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You want to do this before anything else. It can give you a clear view of your finances. Are you spending more than you’re earning every month? Could you be earning more or paying out less? These are the questions that you should be addressing when you look at your income and expenses. And you need to be really honest with yourself.

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2. Set your money goals

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Next, it's time to set your goals. What are you saving towards? Do you want a holiday, or a deposit for a house? Or do you want to get out of your overdraft, or pay off some credit card debt? Setting realistic goals can help you to stay on track. Motivation is a huge part of success when it comes to budgeting in your 20s. 

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If your goals are too far out of reach, or leave you without enough money to lead a fulfilling life while you save, the chances are you’ll feel too much pressure or be tempted by more immediate rewards.

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 If cracks start to appear, your plans can quickly crumble. So set goals that truly excite you, and that you can reasonably achieve.

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3. Create your budget

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Now that you’ve pinned down your income, expenses, and goals, it's time to create your budget. Start with the money you need for essentials, like rent, energy bills, food, and transport. Automatically set that money aside with Direct Debits and standing orders each month (ideally on payday). That way you know your essential living costs are covered.

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Now you know what you have left to play with. Allocate the money you’ve decided on to your financial goals. We’ll look more at what that could be and how you can do that below. Once you’ve paid your essentials and goals, the rest is just for you. You can spend that on whatever you like!

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Sure, you might not have loads of money left for entertainment, but if you can create a budget and stick to it, you’ll be well on your way to building yourself a more financially stable future. As your income increases, these budgets will start to look better too, as they scale with you. 

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Here’s an example monthly budget planner that you can use to sort out your finances:

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4. Track your spending and cut your costs

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Once you’ve created your budget, it's important to track your spending. Make a note of everything you spend and compare it to your budget. This helps you identify where you might be overspending or underspending. Try to automate as much as possible so that your budget runs without you having to remember things and avoid temptations.

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As you track your spending, you may find that you need to make adjustments to your budget. Don't be afraid to do this – a budget is a flexible tool, and it's important to make sure it works for you. Be realistic, be honest with yourself, and try to be consistent.

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5. Pay your debts first

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One thing to remember when building a budget for your 20s is to pay your debts before you save. It can be tempting to put money aside first, so you can watch your pots grow.

But here’s the thing: interest that you pay on debts can be far higher than the interest you earn on savings. Paying off debts first makes more financial sense in the long run. 

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6. Save little (or lots!) and often

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Whether you’re saving towards an emergency fund (where you save about three months income to cover unforeseen lifestyle changes), your bigger financial goals, or you’re paying off a large amount of debt, keep at it!

Even amounts that seem totally unmanageable can be chipped away at when you stick to your guns.By saving a little often you will see your goals get closer and closer, and you might even be surprised at how quickly you can reach them.

Yes, if you can throw more money at your goals you’ll get there quicker, but don’t be afraid to start small. Even just rounding up all your spending to the nearest pound and putting that aside can have an impact over time.

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7. Beware of the overdraft

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As a student, you might be offered a 0% interest overdraft. But even with a regular bank account you’ll likely be tempted with larger overdrafts than you need. Be careful! While overdrafts are useful cashflow buffers, you’d still be getting into debt which will lead to higher interest rates after the promotional 0% period ends. Use them sparingly, and never go over your overdraft limit as you can be charged very expensive fees.

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8. Make credit work for you

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Credit can be scary. Especially, as we’re not really educated about it at school and without that financial education, some products can trip us up and leave us in financial trouble. But actually, using credit sensibly can help you build your credit score, which in turn boosts your chances of getting mortgages, loans, and even mobile phone contracts. So it pays to know how to use credit.

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Your credit scores (you have three, not just one) are calculated from your credit history by the top three credit reference agencies (CRAs) in the UK: Experian, Equifax and TransUnion. These scores give you a summary of how creditworthy you appear to lenders when you apply for credit. Generally, the higher your credit scores the more likely you’ll get accepted with better interest rates.

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If you don’t know your credit scores, you can check with each of the CRAs using these services. They’re free to use, you can check as often as you’d like, and they won’t hurt your credit score: 

ClearScore (uses Equifax data)*

Credit Club (uses Experian data)

Intuit Credit Karma (uses TransUnion data)

*For transparency, we wanted to let you know that ClearScore pay us a small commission if you sign up using this link.

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The best way to improve your credit score is to start using credit sensibly. One of the quickest ways to build your credit score is by starting your membership with Loqbox with access to Loqbox Grow, Loqbox Save and Loqbox Rent, all for just £2.50 a week. Your credit score could grow up to 300 points in the first three months using all of them.

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Improvements to your credit score are not guaranteed