Like many things in life, setting money aside as savings is a habit that needs to be developed.
It doesn’t take a miracle to save money. But if you want to see your nest egg grow, you need to do what you can to encourage a savings habit – especially as a young adult!
We’ve put together some simple tips to help you start saving, and stick to it.
1. Determine exactly where your money is going. For the next 30-60 days keep track of every single dime you spend. Use a little pocket journal to jot down notes as you go, as if you were keeping track of expenses on a business trip. This will give you an exact snapshot of where your money is going and make you astutely aware of what you are spending.
2. Create a budget. Use the insight you gained from your money-tracking experience to create a budget. Determine what your income is and what your short and long-term expenses are. Based on this information you’ll be able to determine how much you can reasonably save on a monthly basis. (For more information about setting up a budget, check out our article How to set up a budget for your family and stick to it)
3. Establish an emergency fund. If you haven’t already, start setting aside money for an emergency fund. Financial emergencies can come in the form of a job loss, significant medical expenses, home or auto repairs or something you’ve never dreamed of. Having an emergency fund will help you weather these challenges. Make it a goal to build up cash reserves to cover between 3 and 6 months worth of living expenses for your emergency fund.
4. Automate your savings. Work with your bank to set up automatic transfers on a bi-weekly or monthly basis into your savings account. Automating this process will ensure that you save on a consistent basis and aren’t tempted to spend the money on something else.
5. Pay yourself first. The first bill you pay each month should be to yourself. Before you pay your monthly expenses, go shopping or use your income for anything else, automatically set aside a portion of your income to save. This habit, developed early, can help you build a tremendous nest egg over the years.
6. Participate in your employer’s retirement plan. Start contributing money to your company’s employer-sponsored retirement plan immediately. Whether it’s a 401(k) or an IRA, starting to save for your retirement early will have a dramatic impact down the road. If you can’t participate at the maximum limit, start where you can and commit to increasing your investment 1 percent each year until you reach the maximum.
7. Take time to understand your benefits. It’s astonishing how little people understand about their benefits package. Make sure you fully understand your retirement plan, flex spending accounts and other benefits. These things add up when you use them over time to save on taxes and opportunity costs.
Don’t give yourself a choice when it comes to savings. Commit to these simple savings tactics and you’ll hardly notice that you’re saving for your future.