A Beginner’s Guide to Financial Health for Gen Z 

Were you born between 1996 and 2012? If so, you’re most likely part of Gen Z: the generation that’s entering or well into their 20s.

SaverLife wants to better understand our Gen Z members who are navigating their financial health journeys. From our preliminary research, we uncovered that young adults are spending significantly more on necessary expenses year over year. In fact, only 38% of young adults increased their savings by any amount in 2023. And this is a 3% decrease from the previous year.

While Gen Zers living on low-to-moderate incomes face increasing threats to their financial health (like costs of living, debt repayments, and climate change), they’re still taking steps where they can to prepare for their financial futures. The challenges may be unavoidable, but our Gen Z members are finding ways to work around them.

One way of building toward your future financial health is by making a plan and taking small, consistent steps toward your goals. Keep in mind that unexpected expenses and financial shifts can happen to anyone. If you find your plans change suddenly, give yourself the grace and understanding to try again.

There’s no one way to achieve lasting financial health, but some of the following suggestions can help you prep your budget and stay on track as you start your career, build savings, or plan for long-term goals. Keep reading for our beginner’s guide to securing your financial foundation as a Gen Zer.

Understand Your Cash Flow

Starting out on your financial health journey? Make sure one of your first steps is understanding your cash flow.  It’s important to know how money moves in and out of your account each month before making plans for how you’ll manage your budget or save. This will also help you create a spending plan to keep yourself on track moving forward.

Look at three to six months of your past spending and income, and make a note of how much money you bring in monthly. If you receive an hourly wage, it might be beneficial to find the average of your income over the past few months. This way, you don’t have to take each income change into consideration. Knowing your income gives you a starting point and tells you how much you must save, spend, and invest each month.

Once you’ve calculated the amount of money coming in each month, take a look at your expenses and bills that are drawing money out of your account. This will help your spending plan be as accurate as possible so that you can plan for upcoming paychecks and expenses and keep your finances in check.

Create a Spending Plan

Once you understand where your money comes from and where it goes each month, you’ll need to create a spending plan. A spending plan, or budget, helps you decide where you want your money to go and it ensures you live within your means.

To create a plan, take a look at your expenses from the last three to six months and group them by type. Were they for rent, groceries, credit card payments, socializing, or something else? Once you have a sense of the types of expenses you accrue, start dividing them between these two categories:

• Essential spending: bills, rent, groceries, insurance, child care, debt payments, and other costs of living
• Optional spending: recreational activities, social events, or other expenses that you like to account for in your budget but don’t necessarily need

Once you’ve grouped your past expenses under these two categories, calculate the average total per month for both your essential and optional spending. Then compare these averages to your monthly income.

If you find that your expenses are more than your income, try to make changes to your spending plan where you can. If there’s a recreational activity that you like but don’t need, consider doing it every other month instead of monthly, and see how that changes your budget. 

If you find that there are no ways that you can reduce your expenses, get in touch with your service providers to see if there are alternative ways you can cut down on costs. SaverLife member Roshelle contacted her energy company to create a payment plan for her electricity bills, while SaverLife member Mercedes is using the Public Service Loan Forgiveness program to decrease her student loan payments.

Set Up the Right Accounts

As you build your financial foundation by understanding your cash flow and creating a spending plan, it’s also key to look at your accounts. Having the correct accounts can help you secure your financial future.

At a minimum, there are two accounts everyone should have. First, you’ll want to have a checking account. This will often be where your income is deposited. It will also be the account you pay your bills from. Having a good checking account that you feel comfortable with is important.

In addition to having a checking account, it’s important to create a savings account. Your savings account can be at the same bank as your checking account. You could also consider opening a high-yield savings account (HYSA) at another institution. A HYSA will earn more interest so the money you save will work harder for you.

If you feel ready, you can also apply for a credit card. Maintaining good credit can help you qualify for better interest rates on loans and lower insurance premiums. Plus, it will start building your credit history. However, opening a credit card does come with additional responsibilities. To show that you’re a reliable borrower, you’ll want to make sure you pay your credit card statements on time and in full each month

When considering your first credit card, try to find one that doesn’t have annual fees. It’s also beneficial to research cards that offer rewards that you value like travel points, cash back, or special discounts. No matter which credit card you end up with, be sure to only spend what you can comfortably afford to pay back so that you stick to your spending plan.

Create Goals

If you’re in Gen Z, you’re most likely starting out on your financial health journey. And guess what? There are so many opportunities you can take advantage of. As you start building your budget, savings, and assets, create some goals for yourself. Whether you want to pay off your bills in full each month or put money away for a home, setting benchmarks and taking steps toward them will build your confidence and resilience — no matter what challenges the financial system might throw your way.

Just remember: your goals should be SMART, which means they’re:

• Specific
• Measurable
• Actionable
• Realistic
• Time-based

Having these elements in your goals gives you a better chance of achieving them. A SMART goal for your finances could look like this:

Save $100 each month for the next twelve months to be able to take a vacation for $1,200. I will save $50 from each of my bi-monthly paychecks and I will move the money to savings the day I get paid. 

As you set your goals, keep your budget in mind. Consider how much money you need to save for a goal and when you’d like to achieve it. It can be tempting to set several financial goals at once, but sticking to one or two goals is often a better approach. It allows you to put your resources effectively towards those goals, and you get to see progress quicker. This is good because accomplishing these goals can motivate you to stay on track and tackle the next one on your list.

Manage Your Debt

Many SaverLife members have shared that debt plays a part in their financial health. Whether it’s student loans, medical bills, or a car payment, they’ve found ways to navigate their financial health journeys and keep their debt obligations in check at the same time. 

The first step to managing your debt is being sure you know what debt you hold. Make a list of all your debts. On this list include:

• What the debt is
• Who you owe
• How much you owe
• The minimum monthly payment
• The interest rate

Once you’ve built this list, add up the minimum payments across all your debts. This is how much money you need to devote to debt each month to meet your monthly minimum obligations.

After you’ve calculated your required debt payments for each month, take a look at your budget. If you currently have money left over each month, consider using some of this to pay down your debts faster. Remember, even if you’re paying the minimum monthly payment on debt, interest can still keep accruing on the remaining balance.

If you decide to pay down your debt more quickly, it’s often a good idea to focus on one debt at a time. A popular method, the debt snowball, has you focus on the smallest balance debt first. You pay the minimum amount on each of your other debts, but any extra money that you have you apply to your smallest debt. Once your smallest debt is paid off, you move on to the next smallest one. This can help you build momentum and keep motivated during your debt payoff journey.

Another key to managing debt is to make sure you don’t borrow more than your budget can afford. Each time you consider taking out a loan, work the payment into your monthly budget before you borrow to make sure it won’t disrupt your spending plan. This can help you avoid getting in over your head.

Track Your Progress

Once you’ve set up a budget, created goals, and worked on debt management, you might think you’re done. But, when you’re trying to build a good financial foundation, it’s key to track your progress.

When tracking your financial progress, have a method that works for you. You can track using an app, your bank’s software, a spreadsheet, or even pen and paper. The key is just to make sure you do it so that you can maintain your budget, take steps toward your goals, and celebrate your success.

To keep the tracking process from getting too overwhelming, check in once a week rather than daily. This will help you build a strong habit of tracking that you can maintain throughout your life.

Don’t Be Afraid to Ask for Help

Understanding your cash flow, setting up a spending plan and the right accounts, creating goals, and managing your debt will help you secure your financial foundation for life. 

But there may still be times when you find yourself in a situation where you don’t know what to do or feel like you’re in over your head. In these situations, it’s important to ask for help. Talking about money can be challenging, especially if you feel like you’ve made a mistake. But remember: we all make mistakes, and the faster you get your mistake corrected the less it will affect your financial health and goals. Find someone you trust who you can talk to about your money. It could be a family member, a close friend, a religious advisor, or even a professional financial counselor. No matter who you choose, be sure you can talk openly and comfortably with them and that they understand who you are and what your financial situation looks like.

The SaverLife community is always here to support you too. You can pose your financial questions on our forum, read stories from other members about their own financial health journeys, or check out more content like this for information on building toward your financial health future.