Seven Savings Tips for Young Adults
January 26, 2012
by Eric Bell, Editor-in-Chief, YoBucko
Saving money can be tough when you're just starting out in the real world. To help you understand how to save more money in your twenties, here are seven simple savings tips to help you save more money:
- Budget to Save
- Automate your Savings
- Save for Emergencies
- Save for Retirement
- Save for Big Purchases
- Save for your Education
- Save for a Home
Creating a budget is one of the first steps to save money. A budget is like your roadmap to financial success. It shows you where you are today, and helps you track your spending each month. Think of a budget as your monthly spending scorecard. Once you've created your budget, look at your spending to see where you can start trimming the fat.
Paying yourself first is tough if you have to cut a check every time you want to save a few bucks. Fortunately, there is a simple way to save that you can access if you have a bank account: direct deposit. Direct deposit allows you to automate your savings plan by sending money straight to your savings account. Talk to your employer or your bank to find out how you can set up direct deposit. Before you know it, you'll be building a nest egg and well on your way to financial independence.
When you are just starting out, building an emergency fund should be a top priority. Experts recommend saving 3x your monthly expenses if your single, and 6x your monthly expenses if you are married or have kids. Bad things happen, even to good people. By building an emergency fund, you'll be prepared to make it through the tough times and have a some extra money set aside for a rainy day.
Most employers today offer benefits packages that include a 401k and may even match your contributions up to certain limits. That's free money!!! In addition to getting matching funds from your employer, you'll be pleasantly surprised to find that contributions to a 401k plan lower your tax bill too. Contact your employer or HR department to find out what benefits are available to you.
While buying a new car, getting married or taking a vacation may not be on your radar today, they may be on the horizon. Consider putting a little money aside for some of your goals today so when the time comes you'll have the cash to do what you want. If you know you won't need the money in a year or two, consider putting your money into a Certificate of Deposit ("CD") so you can take advantage of the higher interest rates.
If you are considering going back to school or having kids, you should definitely start saving now. The inflation rate on tuition has been rising for years, and the only way to keep pace is to start saving. One of the best ways to save for college or your child's education is a 529 Plan. Each state has a 529 plan, and some states even give you tax breaks for contributing. But remember, if you are going to need the money for tuition in the next few years, 529 plans do invest in stocks and bonds so you'll want to make sure you aren't putting all your tuition money at risk.
Buying a home is one of the biggest purchases most people make in their lives, but far too often people don't start saving early enough for the down payment. Ideally, you can save enough to put 20% down on a new home so you can get lower interest rates and other fees. If not, don't fret. There are programs out there (like "FHA") that help first-time home buyers buy a new home with as little as 3% down. Either way, it makes sense to start saving for a new home sooner rather than later. Here's an article to help you figure out how much house you can afford.
The Bottom Line
Saving money isn't hard if you have a plan, automate the process and start saving now. Learn to live below your means, and always look for ways to save money for the future. For more money-saving tips and advice to help you build wealth in your twenties, get involved in America Saves Week 2012 and check us out at YoBucko.