No matter your age, saving money, keeping track of your finances and preparing for your future are incredibly important. Being financially smart can be a difficult task since most of us weren’t taught this in school, and the knowledge usually comes from research and/or experience. Based on my journey into planning for my future, I’m going to share with you some of my favorite money saving tips. From planning for retirement, to keeping credit card debt low, and investing in stocks, this is some of the advice that I’ve been given, which has helped me become financially independent.
Create savings goals and break them into categories
For most people under the age of 40, saving money is a struggle because we have so many financial responsibilities. However, when you have a plan to save it gives you more of a motivation to be cautious with your money. Setting goals is also important because you visualize the rewards you are working towards which makes it easier to save.
Start by rethinking small economical decisions you make each day, like how often you eat out or buy a coffee. Ask yourself if you can cut back and do the math to see what you will save. Break it down by week, month, year, and three years. It can be a great motivator when you see how much you can save by forgoing that daily espresso. Also, when you create goals, write them down, have monthly checkpoints, and deadlines.
Start a travel / vacation fund
If your plan is to take a vacation by the end of the year, write down your goals and begin researching what the trip is going to cost. Make a list of all the expenses (flight, rideshare, hotel, food, sightseeing, and extra spending money). Once you have the total estimate, figure out how much you’ll need to save per month to achieve your goal. If your trip is a year from now, and the estimate is $3,000, divide $3,000 by 12. You will need to invest $250 each month in order to reach your travel goal. If that goal seems out of reach then you would need to modify your vacation to a more affordable one that could be budgeted for.
Money saving tip: Have a vacation fund account already set up where you deposit a percentage of your paycheck each month to use on future trips.
Set up a retirement plan – 401(k) or IRA
Retirement is something everyone should plan for as soon as they enter the workforce. An excellent way to start is by opening up a 401(k) plan through your employer, which is tax deductible. This investment allows you to save money and invest with deductions from your paycheck. If you commit a set amount per year, with an annual return, you can have plenty of money by the time you hit retirement age. Employers will typically match a percentage of your contribution, which is a significant benefit and will ensure you have money to live on after you retire. However, if you can’t commit a few thousand per year just yet, put in as much as you can until your income heightens.
While having a 401(k) through your employer is certainly an option, an IRA is another option and it can provide you with even more of a retirement income. This is also beneficial for people who work part time, are self-employed or their job doesn’t offer a 401(k). With IRAs, there are a few to choose from…traditional, Roth, SIMPLE, or SEP and you can get them through a bank, broker, or robo-advisor. If you open an account with a broker or robo-advisor you’ll be able to invest in stocks and bonds, and if you open through a bank you’ll be limited to savings and certificates of deposit.
Plan to buy property
One day you are probably going to want to stop renting and purchase a property for yourself and/or your family. Owning a home builds equity and it’s also a great alternative to investing money which can make you more if you decide to sell. Create a financial strategy where you can put a specific amount of your paycheck into an account each year so when the time comes you can purchase your dream home.
Only have one credit card
When you’re young, having a credit card is an essential way to build credit, but it’s also something you should be careful with. Allowing yourself one card with a low credit limit, or one that’s relative to your monthly income will ensure you don’t overcharge. If you have multiple cards with high credit limits that may create an incentive to spend money you don’t actually have. A good rule of thumb is to only use it for purchases that you can pay off within a month to prevent high interest fees and keep the charges on it as low as possible.
Money saving tip: Not all cards have your best interest at hand. Choose one with a low APR, cashback, and rewards.
Use your credit correctly
Never use more than 30% of your available credit, because a large balance will negatively affect your credit score. If you start getting close to 30%, make a plan on how you will bring it back down. Never spend more than you’re able to pay off, so having a smaller credit card limit can help decrease your chances of going into a mountain of debt.
Strive for a high credit score
When you have a high credit score, it allows you to get the best rates on large investments. If you have mediocre credit, you can get a loan, but you will have to pay higher interest rates because those loaning to you will see you as a “high risk borrower.” When you have a low credit score, you will be denied, need a cosigner, and there will most likely be an astronomical interest rate.
Having a high credit score gets you better rates when you’re looking to purchase a car, procure a mortgage, or borrow for your business. This saves you a lot of money in the long run. Ensure a high score by paying your bills on time so you don’t get late fees or have to pay interest. Don’t forget, hard or soft credit inquiries affect your credit score. You can regularly check yours by creating an account on Experian or Equifax.
Prioritize your debt
Start off by paying high interest rate debts first and then work your way down. This will save you money because the sooner they’re paid off the less money will be thrown away on interest charges. Another way to take control is to merge or consolidate your bills. This is done by borrowing money from a bank or credit union who pays off your debt balance, then you repay the institution a monthly payment with far less interest.
Invest your money
If you want to become wealthy, you’ll need to do more than earn a paycheck. When you invest your money correctly, it will grow your finances, which can lead to substantial wealth. Before you invest, do a ton of research and talk with a financial advisor who can help steer you in the right direction. If you jump in without knowing what you’re doing, you may end up losing money instead. Below are a few suggestions on where to invest your capital.
Become a shareholder: When you own stock in a public company, you’re considered a shareholder. Common stocks allow shareholders to vote on issues within the company. Some stocks offer dividend payouts, which are like bonus payments. When your stock’s value increases, you capture market gains. You can hire a stockbroker to set up a portfolio for you, use a robo-advisor, or you can open a brokerage account yourself with TD Ameritrade, Fidelity, or Ally. When choosing the right type of stock, blue chips and dividend-yielding are good options. These are companies like JP Morgan, Apple, Johnson & Johnson, or Starbucks (here’s a list for 2021).
Invest in cryptocurrency: Cryptocurrency has been all the rage in the world of investments and finance over the past few years. Robinhood and Coinbase are well known apps where you can buy and sell cryptocurrency, with Bitcoin being the most popular. Crypto serves as a great long-term investment because it’s an asset that maintains its value rather than depreciating.
Follow the 50/30/20 rule: If you have a take home pay of $5,000 per month, how can you invest that, but also have money for basic needs and other monthly expenses? When you set a budget, it prevents overspending and lets you know where and how you spend your money. That’s why the 50/30/20 rule is a good practice to follow. You use 50% of your income (after taxes) for basic needs like rent, car payments, bills, food, insurance, etc. 30% is for wants like brunch, concerts, shopping, hair appointments, etc. Then 20% is for savings and debt payments.
There are various apps you can use, like Mint or PocketGuard, that connect to your checking, savings, and credit accounts and create a snapshot of your finances. This is a great way to see where you’re doing a good job and where you need improvement. Some other ways to save money and budget are to only use cash for day-to-day purchases; try to find the lowest prices available (although time-consuming, it’s certainly worth it); spend based on your income and not on your desires; cut down on monthly bills, use coupons when you can.
Money saving tip: Honey is a web browser extension that finds you discounts when you’re shopping online.
Take advantage of apps and resources
Money Under 30: From income tax advice, to investing, to learning how to save, this online resource has a variety of money management topics. Their articles are written in a language that is simple to understand while still being informative.
Gen Y Planning: Ideal for millennials, these virtual financial advisors help their clients with things like student loan debt and credit card debt, retirement, investments, tax planning, cash flow, insurance, estate planning, and more.
Wally: shows you where you’re spending your money, and can help with budgeting, planning, and saving. Wally connects to your bank accounts and credit cards, allows you to scan and upload receipts, create specific categories, set bill pay reminders, make grocery lists, and more. (It’s $24.99 per year or $1.99 per month). Two more options are Mint and PocketGuard. Both are free with a ton of features, but they also have premium versions available to purchase.
Disclaimer: The information presented in this article is based on my research, from my own personal experiences, and talking with professionals. Please be informed that I’m not a financial advisor or expert in the field.