KJ: Saving money is all about working through things for the long-term. So what then can young savers do to maximize their savings and pack a punch for their long-term goals? We’ve pulled together a list of eleven smart money saving tips all young investors should have on their to-do list. Help spread the word with other savers, and let’s work together to build a better, brighter, and savier (surely that’s a word!) future. I’ve included a *few* references to some of our older posts if you feel so inclined for some further learning.
(1) Setup a Roth
Whether it’s a Roth IRA or a Roth feature of your 401(k)/403(b), if you’re young, you should be taking advantage of the feature! A Roth IRA is after-tax money (meaning you pay income taxes on the money in the year you earn it and you don’t get to deduct contributions TO the account), and it grows tax-free. No more taxes on that money for retirement regardless of the growth…think of the possibilities! These are EXTRA great tools for people who are in a low tax bracket AND who are young. Chances are if you’re young, you aren’t at your peak earning point in your life, so win-win!
(2) Learn about the HUGE benefit of compound interest
Starting to save early means you can take advantage of the compounding effect of interest and growth over time – i.e. the whole make your interest earn you interest concept. Having time on your side means the sky is the limit!
(3) Pay down student loans
With student debt surpassing country-wide credit card debt in recent years, chances are as a young saver, you have student loan debt yourself. So, work up yourself a payment plan and find ways to cut your expenses to be able to pay down the debt and get rid of it. Most loans are for 20 years, and I can assure you your 20-year-older self will be glad you paid it down quickly!
(4) Pay off any credit cards quickly
You’re young, you have nothing but time on your side, and you’re going to get a killer job out of college with the awesomeness that is your college degree. Then, reality sets in, and you realize how much more of a challenge it is to pay off those expenses you didn’t think twice about. Well, now’s your time to shine and pay down your *extra bad* debt quickly. Whether you choose the snowball method OR highest interest method, you can’t go wrong. With the snowball method, you basically pay the lowest BALANCE card first with as much extra income as you can, minimum payments on other cards, then once the lowest card is paid in full, you apply that payment to the next highest card until it’s paid off, and so-on-and-so-forth. For the highest interest method, focus instead on the highest interest rate card(s), then next highest, etc. Sometimes the snowball method provides that “instant gratification” as you knock your debt in the teeth and eliminate the number of cards with balances quicker.
(5) Setup – and fund – an emergency fund
First out of college and starting your first career? Build good savings habits today and setup an emergency fund. Try a money market account, Certificates of Deposit (CDs) at a local (or online) bank, or a good-old regular savings account. Build it as quickly to $1,000 as you can, and then work on paying down debt, saving for retirement, and building your emergency fund until it’s 3-6 months of your living expenses. Use Quicken or Mint.com to track your expenses, so you know what 3-6 months of your living expenses REALLY look like.
(6) Set some goals (financial, professional, and personal)
Put pen to paper and start setting some goals for yourself. Be specific and S.M.A.R.T. (Specific, Measurable, Attainable, Relevant, Time-Bound) about all of your goals. Sounds fancy, but it’s quite simple. Read more here. What’s the point of saving if you don’t know what, where, or why you’re saving?
(7) Create a budget
If you don’t currently have a system you use – or are in the market for a new system that works better for you – start with the following options: Quicken or Mint.com, Yodlee!, Personal Capital, or just a handy-dandy, pen & paper Moleskine Ruled Journal. Start building a budget by creating a list of all of your expenses. Be specific, and honest about your expenses!
(8) Live on less and see how long you can keep it going
Chances are you could stand to live on a little less. Try it out for a month by cutting one area of your budget whether that’s shopping (that was Angela’s personal choice at the beginning of last year!), less eating out, or less Starbucks. Maybe it will spark you to find ways to trim other areas of your budget…it’s amazing how this mentality and behavior can feed on itself.
(9) Spend less, save more
Basic, huh? Well, actually there are profound impacts on how much better off you will be if you just learn to live beneath your means. Not only will you be able to save more, but you will need to actually save less for your long-range goals by nature of having fewer expenses to cover at a later age.
(10) Save for your child’s college
Learn about tax-advantaged ways to save for your child’s future college expenses, and consider utilizing a 529 plan to get more bang for your buck.
(11) Read about account types
From taxable accounts to retirement accounts to health savings accounts, start doing some research and learn about different account options. There’s a lot out there, but all the more opportunity to learn more and master the savings game!
- Is there anything you would add to this list?
If you’re at or near retirement, what do you wish you had known that you could tell your younger version of yourself?
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