The number one tip I’ve received from any financial advisor I’ve spoken to over the years is: start saving early. If you’re reading this and you’re in your 30’s (or even 40’s), don’t fret, though. The important part is starting as soon as practicable, and implementing strict rules for yourself going forward. Cheat days on your financial plan feel just like that fast food you ate but knew would make you feel sick afterward—euphoric in the moment, but not worth it. Don’t get me wrong, I love a nice burger and fries—but if I’m going to have one, it’s going to be good quality beef and freshly cut shoestring fries. Meaning, it’s going to be worth the investment. Catch the metaphor there?
I’ve always strived for financial freedom and security, and the sense of empowerment I get from saving for my future is worth every handbag I didn’t buy or shoe that I *wish* was in my closet. So, without further ado, here are five money saving tips to implement as soon as possible!*
1. Know your balance sheet, and set some budgeting guidelines.
One of the biggest mistakes younger people make is simply not having control over their finances. Sometimes it’s easier (and less stressful—in the short term) to keep your head in the sand about what you’re spending versus what’s coming in each month. I promise, though, it’s not less stressful in the long run. By beginning to track your spending habits (which is easy if you use an app like Mint), you’ll see which categories you’re allocating your funds toward, while being able to make smart adjustments. For example, if you’re spending more money on entertainment and food than rent, you might want to reevaluate.
The 50/30/20 rule is a great starting point for smart money allocation. With the 50/30/20 budget, you allocate 50% of your income toward living expenses and necessities (i.e., rent, utilities, groceries), 30% toward wants (i.e., entertainment, clothes), and 20% toward debt and savings (i.e., student loans, 401(K), investment accounts, and similar financial instruments). If you have more specific goals at this time in your life, like saving to buy a home, play around with the percentages to reflect those goals. For example, if your goal is to purchase a home, you might up the 20% that goes toward debt and savings to 40%, and decrease the other categories.
2. Start a Roth IRA.
Sure, this is a long-term play, but who doesn’t love tax-free income? The only catch is that you’ll have to wait until retirement. While contributing a portion of your monthly paycheck toward an account you won’t see for decades doesn’t seem super appealing, I bet I can change your mind with this Roth IRA calculator. One goal of saving is, ultimately, enjoying the latter portion of our life after decades of hard work (sounds a bit dreary when you put it that way), and this financial instrument is a direct path to financial security if used correctly. For example: if you’re 25 years old making $50,000 a year before taxes, you could spend about $500 a month leasing that new car you’re obsessed with OR you could contribute about $6,000 a year (your max Roth IRA contribution, equaling $500 a month) to a Roth IRA and, at retirement, your Roth IRA balance will be $1.12 MILLION. Let that sink in when you’re eyeing the latest Tesla.
3. Start an emergency fund.
Being prepared is never a bad thing, and having a pool of money set aside for unplanned expenses is a great thing to prepare for. Sh*t happens. Accidents happen. Texas having a record-breaking storm HAPPENS. And when emergencies happen, it usually means shelling out cash, unfortunately. Customarily, the savings goal for an emergency fund is six months’ worth of living expenses. The Balance recommends to start contributing to this fund conservatively—about 2% of each paycheck to start—and then increasing by 1-2% every six months to one year to build your emergency fund over time.
4. If you have debt or student loans, pay more than the minimum if you have the means.
While this tip equates to saving less money in the short term, we all know how compound interest works. That manageable number can turn into a much bigger, scarier number if left to compound over the life of the loan. Pro tip: Forbes recommends focusing on your emergency fund (i.e., that stash for a rainy day) and retirement savings first, then paying off any debt with interest rates over 7%. Why? For interest rates over 7%, you’ll likely save more on interest than you would earn by investing that money.
5. Make your money work for you.
Ok, so we’ve talked about retirement savings, but how else can you make your money work for you (versus just sitting in your bank account)? Depending on how risk averse you are, you can begin placing your money in different investment instruments like stocks and bonds. For me, I was most comfortable investing with the help of a financial advisor who helped me build a portfolio, but there are also reputable online brokerage firms if you’re a little more versed on the stock market.
*Disclaimer: I’m not a certified financial planner/advisor/certified financial analyst/economist/CPA/accountant/lawyer. This article is for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. These are my personal learnings, and by using this site, you agree to hold Nastia Liukin Enterprises harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information found on this site.