Key takeaways
- The article provides practical steps to create smart strategies for saving money.
- It's recommended that you pay down your high-interest debt first, especially credit cards with premium rates. And if you can, pay your balance in full to reduce the interest you pay.
- When your money is freed from paying off debts, you can put it to work. Whether it’s stocks, bonds or other instruments, a financial advisor can guide you through investment options.
It’s good practice to start saving money as soon as you land your first job. But saving money can bring up complicated questions: How much of my income should I save? How much can I afford to invest in my 401(k)? And how can I save while also paying down my student debt?
This article offers practical steps, so you can be ready to save for the future. Let’s start with your monthly budget.
Step 1: Make a budget
A written budget maps out your income and expenses by showing where your money goes, month-to-month. It supports your spending and savings plan.
Budgeting may sound complicated, but it starts with just a few simple steps.
- Ask yourself why you’re budgeting. What goals are you working toward and what do you need to achieve them? Figure your monthly income and recurring expenses, including living expenses (rent, utilities) and regular payments (student loans, car payment). This can help you see how much money you have left for everything else.
- Set a budget for different categories of spending. Outside of what you need for food and shelter, you should have some discretionary income for dining out, entertainment, travel, etc.
- Make sure to leave a portion for savings. A good rule of thumb is to squirrel away 15 to 20 percent of your income each month. It’s okay if you can’t afford that amount just yet. There are strategies to build it up over time, so it doesn’t feel overwhelming. For example, start with a percentage that’s doable and raise it at the beginning of each new calendar year. Before you know it, you’ll be saving like a champ.
Step 2: Plan your savings
That extra money can build for the future. You may have a variety of savings goals to put the funds toward. There are two or three pots you should take extra care to fill, first:
- Emergency fund. This should cover three to six months of living expenses. The money from this fund can come in handy when paying for unexpected expenses or events, like a car repair or job loss.
- Employer-sponsored retirement plans. Many companies offer a 401(k) plan to help employees save for when they stop working. You can contribute up to $23,000 a year to your retirement account. It also allows employers to match some, or all of your contributions. If you can’t save the maximum amount per year ($1,916.66 per month), strive to contribute at least the amount of the employer match. Your 401(k) plan documents will tell you the percentage of any potential company match. Don’t leave “free money” on the table, by not taking advantage of this benefit.
- Personal retirement accounts. You can also open an individual retirement account. This account can help you save for retirement regardless of the benefits your employer offers. IRAs often have a wider array of investment options, and once the account is set up, you can contribute up to $7,000, annually.
To make saving easier, you can automate your contributions with recurring deposits. You may also consider adding to your paycheck deferral one percent of your salary increase each time you get a pay raise. This ensures your savings grow along with your present prosperity.
Bonus tip: leverage financial tools, like Citizens Savings Tracker™1, to help automate your savings so you can stay on top of your goals.
With any retirement account, it pays to start early, even if you can’t contribute that much at first. These accounts grow through compounding interest’. This type of interest is reinvested, and ultimately, provides more money for retirement. So, a little today can grow into a lot, given enough time.
Step 3: Manage your debt
Whether it’s from student loans or credit cards, debt and the associated interest can really add up. According to one independent study, the average young borrower has about $29,702 in non-mortgage debt. Millennial homeowners carry an average mortgage balance of $295,689.
Paying off debt can help free up money for other things. The quicker you pay it off, the less interest you must cover as the debt lingers. It's generally recommended that you pay down your high-interest debt first, especially credit cards with premium rates. And if you can, pay your balance in full to reduce the interest you pay.
Step 4: Invest
When your money is freed from paying off debts, you can put it to work. Whether it’s stocks, bonds or other instruments, a financial advisor can guide you through investment options.
You don’t need to be fabulously wealthy to get started. Simply begin with whatever you have left over from maxing out your 401(k). Investing a little early goes a long way. If a 25-year-old invests $240 per month, assuming a 9% yearly return, they’ll have $1 million by the time they’re 65. However, wait just ten years to start, at age 35, and they’ll have to put away a lot more money, each month, to reach the same milestone.
By understanding what you have, what you need, and how you can make that money work for you, it’s easier to save for the important things in life. Now that you have more information about saving your money, try the Citizens retirement planner calculator to see if you’re on track for your own retirement.
Ready to tackle your financial goals?
When you have multiple goals to save for, you don’t have to feel overwhelmed. Planning and prioritization can make you ready to reach them all. Citizens is here to help – with banking that stands with you and grows with you. And with automatic transfers from your checking to your savings account, you can set money aside and watch your savings add up.
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