Lessons in Saving: What I've Learned Throughout My 20s
It seems like just yesterday I was surrounded by family and friends belting out the traditional “Happy Birthday” song to commemorate my 21st birthday. Time does fly! Now, a year and a half away from my next milestone, I find myself with a growing list of responsibilities and the uplifting feeling of independence.
No matter what the responsibility, finishing graduate school, finding a job, planning a wedding, buying a home or taking care of three energetic pets, money is the common denominator.
Personal finance can be a major stressor; however, given its importance, it is critical to develop your own management strategy.
Twenty years ago, saving meant bringing my birthday money down to the bank to deposit into a savings account with interest upwards of 3%. Today, it’s not so easy.
Birthday money has been replaced with a salary and that 3% interest rate now varies between 0.01% – 0.05%.
What makes savings more difficult for those of us in our twenties?
When payday rolls around, money is dispersed to pay mortgage & car payments, utilities, phone, credit card and cable bills, taxes, insurance, outstanding student loans, childcare, etc. Many of us, including myself, live paycheck to paycheck, with little wiggle room for saving money.
No matter how difficult, why does our generation need to save?
- Down Payment (House/Car)
What are the top savings tips I have learned, and will continue to work on, before reaching thirty?
- It’s easy to tell yourself that you will deposit your paycheck and move $50 per month into your savings account; however, when the temptation of a new pair of shoes or a night out on the town hits, you may lack consistency in your savings plan. So, Pay Yourself First! Set up an automatic deduction from your direct deposit into an interest-yielding savings account at your financial institution. In time, you won’t even miss the $50 per month but will still have access to the funds in the event of an emergency.
- Choose your accounts wisely. Many banks and credit unions pay compound interest on savings and money-market accounts. Compounding is the best way to earn the highest rate of return on your investment as your annual interest rate is not only applied to your initial deposit but to any additional interest accrued over time. Take for example:
One year ago, you made an initial deposit of $100. In that year, you have accrued $2 in interest. At the end of this year, you will earn interest on $102, your initial deposit, $100 plus interest earned over year 1, $2.
- Participate in a company sponsored 401K plan at your earliest opportunity. Retirement may seem like it is light-years away but, with the many unknowns of Social Security, starting to save is best done at an early age, through a 401K Retirement Plan.
Enrolling in a 401K may be simpler than you think. Your employer will be able to advise you on the specific steps of enrollment. Once enrolled, a portion of your paycheck will be automatically deducted each pay period to the dollar amount or percentage of your income you specified. The amount of your investment, in addition to the account’s level of risk is up to you and what best fits your lifestyle.
Don’t forget, many employers will match your contribution up to a certain percentage. To make the most of the funds offered by your company, your personal contribution should meet, or exceed, the match offered.
- Don’t forget to practice discipline when it comes to spending and saving. Set goals and limitations for yourself, write them down, paste them to your refrigerator and do your best to stick to them!
Saving money can be a very daunting and stressful task for us twenty-somethings but the reward far outweighs the challenge. You will have questions . . . ask them! Your local credit union is the perfect resource for financial literacy and for starting the foundation of savings success.
My last piece of advice: have fun with savings! Enjoy the challenge and reward yourself for successes.
Written By: Amanda Keefe