Savings strategies in your 20s and 30s
Personal savings is a cornerstone of financial success and security. With the right approach to saving money and using accounts that allow for quick emergency access and potential long-term returns, individuals are better positioned to put their money to work for them.
Let’s review some strategies for saving money that are especially relevant for people in their 20s and 30s.
Make a budget
A budget provides critical insight into short- and long-term spending. Without it, it’s hard to determine financial priorities and create an effective savings plan. With a budget, you have a very clear picture of earnings, necessary expenses and discretionary spending. You can adjust the discretionary factors to increase savings and maintain full visibility of where your money goes each day, week, month and year. You can create a budget from scratch or find a variety of templates online that automate calculations and make the process move along more smoothly.
Create an emergency fund
If you are in a position where your income is more than your monthly bills, one of the first considerations you need to make is to create an emergency fund. This cash reserve is invaluable when an unexpected expense arises. Whether it’s $75 needed to pay a locksmith or hundreds of dollars for a serious car repair, having the funds set aside makes financial management easier and provides a valuable sense of security. It also allows you to draw on freely available funds instead of having to rely on a loan or credit card, both of which require interest payments.
Investopedia suggested keeping an amount equivalent to between three and six months’ worth of living expenses‡ in an emergency fund account. Start small and build your emergency fund over time. Once it’s fully funded, you can confidently move on to a variety of other investment and savings strategies with your extra cash.
Pay down debt
Debt, whether from student loans, credit cards or something else, is a major drain on finances it if isn’t efficiently addressed over time. Funds that go toward interest payments could otherwise be put toward more productive accounts, like an emergency fund, a 401 (k), an IRA or a variety of other savings and investment priorities. Make an effort to pay down debt quickly to minimize the impact of interest and eliminate this line item in your monthly budget. Once paid off, the money that would be used to service this debt can go to a number of other priorities that provide a stronger return.
Taking advantage of offerings from your employer
Many businesses offer 401(k) plans and other savings opportunities like tuition reimbursement and wellness incentives that can help cut costs. As a young person, investing money now in an individual retirement account (IRA) means it has decades to grow before it can be withdrawn and used. Look closely at the options your employer offers and avoid the temptation to put off retirement savings. A steady commitment to a 401(k) or an individually managed IRA can help secure your financial future.
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