Having savings to fall back on is important no matter what age you are. A healthy amount of savings can help you afford unexpected medical bills and future milestones, like making a down payment on your first home. In times like today, a savings account comes in handy if you've lost your job or had your hours reduced due to the coronavirus pandemic.
But when you're still in your twenties, saving money can be harder to do. Not only are you burdened with student loan debt from college, but your income is also much lower as you are just starting out in the workforce.
According to data from the Bureau of Labor Statistics as of the second quarter of 2020, the median income for Americans in their twenties ranges from $31,720 to $50,076 annually. Salaries in this range make it difficult to afford the basics while also making room to save, especially if you're in an area with a high cost of living.
Below, CNBC Select asked Sallie Krawcheck, co-founder and CEO of the digital investment platform Ellevest, her best advice for this cohort of future savers in their twenties.
No. 1 recommended savings habit for 20-somethings
Krawcheck recommends to younger adults in their twenties that they automate their savings by setting up direct deposit.
Automating your savings means that every month a certain amount of money from your checking account or paycheck will automatically transfer into your savings account. As you can choose a set amount each month (say, $100), it is one of the easiest ways to streamline your finances without having to think about it.
This can be pivotal when you're already cash-strapped. By scheduling a small recurring deposit into your savings, whether it be from your checking account or your paycheck, you make a habit of saving money early so that it's even easier to when your income hopefully increases.
And by building it right into your routine, it's fool-proof: "If you have to make a decision, you'll end up spending it," Krawcheck tells CNBC Select.
Another facet of automating is finding ways for your money to grow without extra work. You may want to consider a high-yield savings account that earns a higher return than the national 0.06 interest rate on savings.
One example is the Varo Savings Account that offers ways to automatically transfer money from a Varo checking account to your savings account. There's "Save Your Pay," which transfers a percentage of your paycheck into your savings, and "Save Your Change," which rounds up your checking account transactions to the nearest dollar and transfers the difference to your savings.
If you don't want to open another checking account and are just looking for savings, consider the Synchrony Bank High Yield Savings, which comes with a convenient ATM card to help you access your cash easily if you ever need it.
How much money to automate into your savings
It's up to you to choose how much you want to set aside for your savings each month or pay period, and it really boils down to how much your income is compared to your other expenses.
Krawcheck suggests using the popular 50/30/20 budgeting rule: spend 50% on your needs (housing, food, utilities), 30% on your wants or "fun" (travel and entertainment), and put 20% toward your savings.
While Krawcheck refers to that last 20% as the "future you," she says it's helpful to give it a name. For example, maybe it's saving up for "Grandma [Your Name]" and thinking about what you'll need money for when you're older.
"Envisioning her can be helpful means to motivate her," Krawcheck says.
Of course, it's important to evaluate your individual situation and what you can afford. "Have flexibility as your income grows," Krawcheck says. If you're in your twenties and can't save 20% of your income, start at 3% and work your way up.
As your income grows, your savings can, too: "When you're older, maybe that 20% is 40%," she says.
And if you have debt (especially credit card debt), Krawcheck strongly advises paying it off before allocating 20% to savings. Otherwise, what you're racking up in savings is being quickly negated by what your debt is costing you in interest.
Bottom line
If you want to save but you're not sure where to start, automating a portion of your money each month can help.
Having a set amount of money — even if small — that automatically gets deposited into your savings will keep you organized and ensure that you are building security for when you need it.
Information about the Varo Savings Account and Synchrony Bank High Yield Savings has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.
