How to Start Saving Money in Your 20s Without a Budget

Why Most People in Their 20s Never Start Saving

Most Canadians don’t start saving money in their 20s because of psychological barriers, not financial ones. This usually comes down to three things:

• Friction - saving feels complicated

• Avoidance - you don’t want to look at the numbers

• Lack of habit formation - starting feels harder than continuing

The concept of saving has been made to seem difficult. You feel that you need a budget tracking software or a special bank account to start. All of this feels overwhelming so you haven’t started.

Another conflict that you might contend with when developing a savings habit is budget avoidance. You don’t want to face the numbers. Maybe you like watching Netflix, or shopping on your weekends. You are worried that developing a budget will mean cutting out the things that you enjoy. The fear is understandable.

The last barrier to saving is the process of developing the habit. In response to these challenges, we often suffer from what I like to call “I will start tomorrow” syndrome. The truth is that tomorrow will never arrive, so you have to start today. The only way to do this is to start with the minimal viable solution. The one task that solves 80% of the problems with only 20% of the effort.

You Don’t Need a Budget to Start Saving

The biggest barrier to starting to save money is this concept of a mandatory budget. There are thousands of templates that are sold on websites like Etsy, each with their own unique design. The beginner shouldn’t be expected to identify the appropriate budget for them amongst the unlimited options. Also, the amount of information that needs to be collected to fill out one of these budgets just feels overwhelming.

The truth is that saving and budgeting are not the same thing. Saving is the process of setting money aside each month for a goal (ex. retirement, buy a car, pay for a vacation). A budget is an optimization strategy that helps you identify where your money is going each month, and how you can better allocate it.

In order to start saving, you don’t need a budget. There is a simpler way to start.

The Simplest Way to Start Saving: Pay Yourself First

What “Pay Yourself First” Means (In Plain English)

“Pay yourself first” means that when you receive your cheque from your employer the first transaction that you will make is to your savings. This account can be used for whatever you like. The remaining funds are what should be used to pay for the essentials (mortgage, utilities, food) and non-essentials (shopping, entertainment, activities).

The key with the pay yourself first method is that it should be easy to implement. Once you open a savings account, you can set up automatic transfers from your primary account to your savings account each month. These transfers should be set to the day you receive your paycheque.

Why This Works When Budgeting Doesn’t

In an unrelated field, Parkinson's Law states that work expands to fill the time allotted for its completion. The same can be said about money, and its availability. The more we have available to spend, the more we tend to spend. Unfortunately, much of this excess spending happens on non-essentials.

By paying yourself first, you place guardrails around your spending. This constrains you to spending only what is available after savings. Importantly, this isn’t meant to feel like deprivation. The amount you set aside could be as little as $5-$10 per paycheque to start. This behavioral constraint is what makes the pay yourself first method so powerful, especially when compared to traditional budgeting.

This strategy is often more effective than setting up a complex budget because it allows freedom within constraints. For many people, traditional budgeting feels rigid. For example, if I allocate $400 per month to groceries, that becomes a hard ceiling. This isn’t very appealing if you want to invite friends over for dinner. Using the pay yourself first method, you have more flexibility to spend more in one area and less in another, without feeling boxed in by strict categories. By saving first and spending what’s left, you remove the need for constant decision-making while still keeping control over your lifestyle.

Where Savings Should Go First

After you implement the pay yourself first strategy the next question becomes: where should that money go? If your goal is saving your first $100K then follow this simple progression:

Step 1 – Build a Small Emergency Fund Using a Savings Account

The first step is to set-up a savings account. Your savings account is the hub. All money flows through it, rather than immediately into different accounts.

After the account is set-up you can start to build an emergency fund in your savings account. For beginners, $500 to $1,000 is enough to get started. If you want more specific numbers we wrote an article here on the subject. For simplicity, you may choose to use your current bank for setting up a savings account. However, we have recommended some of the best options in Canada here.

An emergency fund is a sum of money that you put into a savings account, that is easily accessible in the case of an unexpected life circumstance (ex. Car repair). It acts like your financial seatbelt protecting you from wealth destruction caused by unnecessary debt.

Step 2 – Eliminate High-Interest Debt

After you have built a cushion in your savings account the next step is to pay off any high interest debt. This includes any credit cards, pay day loans, or personal loans you have.

High Interest debt is generally considered 8% interest or higher, and should be a eliminated as soon as possible. This should be prioritized over investing for the simple reason that you can’t consistently earn a better rate of return without undue risk. A simple rule of thumb: if the debt feels expensive and stressful, it should come before investing.

Since you have already developed the savings habit when you funded your emergency fund, all future savings will flow into the same account and be used to pay down debt. This keeps your system simple: one habit, one account, different outcomes depending on your situation.

Ex. Checking Account —> Savings Account —> Pay off Credit Card

Step 3 – Start Investing (Using Tax-Advantaged Accounts)

At this point you should have built a buffer to be able to financially manage emergencies, and paid off any costly debt. Once you’ve removed the biggest risks to your finances, investing becomes much easier and far less stressful.

Only at this point should you open an additional account to start investing. In Canada, this usually means a TFSA, RRSP, or FHSA depending on your goals.

How to Set This Up Without Tracking Every Dollar

Automation Is the Key (Not Willpower)

In the book Atomic Habits, James Clear explains that habits should be as simple as possible to implement. In order to do so you have to reduce the barriers to starting. He uses the example of preparing the night before to run in the morning: setting out your clothes, filling your water bottle, and placing your running shoes by the door.

Similarly, to stay consistent with the “pay yourself first” strategy you need to make it as easy as possible to follow. The manual process requires you to receive your paycheque, transfer the funds to your savings account, and then pay off existing loans or invest. On top of that, you have to remember to do this every time you get paid before the money gets spent. Although this sounds easy in theory, it adds friction to starting and sticking with the habit. It involves unnecessary steps to our already busy lives.

The key is you have to automate this process. This can be accomplished quite easily in Canada as most banking institutions will let you set up automatic transfers. This is often referred to as a pre-authorized transfer. Using this feature you can set up recurring transfers from one account to another (ex. monthly). This automation process can be used for every step in the process:

1. Employer paycheque is direct deposited into your checking account.

2. Automatic transfer moves your predetermined savings amount to your savings account.

3. Automatic payment pays credit card and/or other loans.

4. Automatic transfer moves money from savings account to investing account.

5. Recurring investments feature allows ETF shares to be purchased on a regular interval.

You may decide to manually perform one or more of the actions in this process, but needless to say it can be performed automatically in Canada without you lifting a finger. The easier you make the process, the more likely you are to stick with it, and consistency is what actually builds wealth

You don’t need to track every dollar, you need a system that runs without you thinking about it.

What to Do When You Mess Up

Here's what will happen: you'll mess up.

You'll forget to set up the transfer. Or you'll see something you want and dip into your savings… even though it wasn't an emergency. Maybe you'll skip a month because things got tight. All of this is normal. The truth is the difference between people who build wealth in their 20s, and those who don't isn't perfection. It's that they restart their habit after they break it. Actually, the most successful are just those who can restart the fastest after they fall off the wagon.

When you miss a transfer or spend from your savings, the instinct is to either give up entirely or try to "catch up" by doubling your next contribution. Unfortunately, neither strategy works. The consequences of giving up are obvious. However, trying to catch up is also problematic because you are now saving more than you initially planned to. This makes the system harder to stick with, and is more likely to result in you quitting.

The solution is simpler. Just restart the habit by saving the normal amount next paycheque. Missing once payment doesn't erase the habit you're building. The savings account balance you had before you messed up is still there. You didn't lose progress, you just paused.

The goal isn't a perfect savings record. The goal is to still be doing this six months from now, or better yet 10 years from now. Consistency beats perfection every time.

The One Number You Should Track

You don't need a spreadsheet with multiple tabs and complex formulas. Instead you only need to track one number. This is your total savings account balance. Ideally, you should check it once a month on the same day each month. Maybe the 1st, maybe payday, whatever is easy for you to remember. The key is checking it only once a month, not daily or weekly, because constant checking creates anxiety rather than motivation.

This single number tells you everything you need to know. It tells you whether you're making progress, whether your automation is actually working, and whether you need to adjust your transfer amount up or down. Watching this number grow, even if it's growing slowly, creates the kind of positive reinforcement that traditional budgets never provide. Budgets just focus on restriction while this focuses on accumulation.

This approach works better than tracking expenses for a simple reason: there's no categorization needed, no guilt about where money went, and no wondering whether you should have spent less on groceries or coffee last week. You just get proof that the system is working.

If the number goes up then you know you're winning. If the number stays flat and you know something needs adjustment. If the number goes down and you know you dipped into savings, well then you need to course correct for next month. That's the feedback loop, and it's powerful because it's so simple. One number, once a month, and you know exactly where you stand.

When Budgeting Does Make Sense

At some point, paying yourself first stops being enough. This doesn't happen because the method fails, but because your financial situation becomes more complex over time.

• You might be earning significantly more than you were when you started.

• You might have multiple savings goals that you're trying to balance simultaneously.

• You might notice that money seems to disappear faster than it used to and you can't quite figure out where it's all going.

This is when a budget actually becomes useful, and it's worth noticing the order here. You don't start with a budget when you're trying to build the savings habit. Instead, you end up needing one after you've already built that habit and you're ready to optimize it further.

A budget makes sense when you're trying to optimize your existing system, not when you're trying to create one from scratch.

• If you're already saving consistently and you want to save even more, a budget will show you exactly where the leaks are in your spending.

• If you have competing goals like saving for a house down payment while also trying to max out your TFSA contributions, a budget helps you figure out how to allocate between them intelligently.

• If your income jumped recently and you want to make sure that extra money goes somewhere intentional instead of just disappearing into lifestyle inflation, a budget creates the structure you need to direct it properly.

So if you're reading this and you've never saved money before, don't start with a budget. Start with one automatic transfer. Build the habit first. Watch your savings account balance grow over a few months. Then, when you're ready to add more structure and implement a budget to optimize further, that's the natural next step. If you want help building that budget or figuring out where you can improve your current one, financial coaching is a great option. We help people who have built the savings habit find efficiencies in their spending, eliminate hidden waste, and accelerate progress toward bigger goals. If you've reached that point, contact us at info@nextgenfinance.ca to discuss how we can help you build a strategy that fits your income, goals, and life.

Conclusion

This entire system comes down to one account, one automatic transfer, and one habit that you build over time. Remember what we talked about at the beginning of this article: starting feels harder than continuing, and the only way past that barrier is to start imperfectly rather than waiting for the perfect moment that never comes. Open a savings account this week, set up one automatic transfer for your next paycheque, and pick an amount that feels manageable even if it feels small. Then let the system run and prove to yourself that you can stick with it for a few months before you worry about optimizing anything else.

Disclaimer: The information discussed in this blog is not financial advice, and is meant for educational purposes only. Please consult a personal financial expert before making any financial decisions.

Citations

• Clear, J. (2018). Atomic habits: An easy & proven way to build good habits & break bad ones. Avery.

• Parkinson, C. N. (1955). Parkinson's law. The Economist, 206, 635-637.