You’ve likely heard that there is no better time to start saving than right now. If so, you’ve heard that bit of advice for a reason. Saving for your future as early as your early 20s is, in fact, one of the smartest money moves you can make.
Though saving for your future begins in your 20s, it shouldn’t necessarily end there. Saving plays a primary role in your 30s and 40s, too. Between the financial responsibilities of paying off a mortgage and preparing for retirement, the need to save becomes even greater as you get older.
The key to ensuring you are well taken care of when you gracefully enter your 50s is tactical planning. “Everyone’s situation is different,” Denise Montgomery, the Cash Management Officer at Prudential Bank, explains, “That is why we believe every client deserves the right to their own financial consultation and a tactical plan to achieve their own financial independence.”
No matter where you are on your personal life journey, creating healthy money management skills will aid you in reaching your financial goals. Below, we take you through the necessary planning steps to prosper in your 20s, 30s, and 40s, so you can feel financially confident moving forward in your life.
How to start saving in your 20s
You may be wondering why your 20s are an ideal time to save as much as possible—and we’ll have you know that the reasoning is quite simple. In your 20s, you have the least amount of expenses in your adult life. With this in mind, it’s important to follow the golden rule of saving 25% of your income and using the remaining 75% for necessities such as rent, utilities, car payments and insurance, a mobile device, and leisurely expenses.
However, saving as little as 5% is a good starting point for those who are on a tighter budget. To follow through with making saving a habit, it’s suggested to open an online savings account. With automatic monthly transfers from your checking account to your savings account, putting money away becomes seamless and steady.
Beyond those suggestions, we have a few other approaches to saving in your 20s:
Start an emergency fund
An emergency fund is a security you need to get through life’s inevitable challenges. In the instance that you lose a job opportunity or encounter unexpected expenses, an emergency fund ensures you can bounce back without succumbing to a personal financial crisis.
At a minimum, your emergency fund should have 3 months worth of income to cover your basic needs. So, if your monthly expenses are $2,000 per month, then you’ll need $6,000 in your emergency fund.
Remember: any amount of savings is savings worth having. If $6,000 in your emergency fund isn’t manageable, begin at $500 and add as much as you can over time.
Create a debt repayment plan
Once you’re ready to begin paying off your debt, it’s wise to create a debt repayment plan. Your debt repayment plan should include making necessary payments to lower the balance of your credit card, personal loans, and student loans.
During your 20s, paying down credit card debt is especially important to build a strong credit score. You’ll eventually need this credit score to take out a business loan or a mortgage for a home in the future. If finances are sufficient, make sure to pay your credit card off in full every month to avoid high-interest charges.
How to start saving in your 30s
Entering your 30s is an exciting time—one that comes with leadership responsibility as you take on kids, higher-level roles at work, and managing your mortgage payments. If you’ve established strong savings habits in your 20s, building those habits in your 30s will get even easier with the right guidance.
Here are a few financial habits to adopt during this decade:
Become mindful of your spending
By the time you’re 30, you’ve leveled up in your career and hopefully, are making more than you did in your 20s. Though your earnings may have increased, establishing a budget is essential. This budget, of course, will adjust to specific life changes such as getting married or beginning a new business venture. During these transitions, you should avoid overspending and work toward building your savings.
Prepare for the future—a little extra
It’s not uncommon in your 30s to get serious about your retirement plan. Increasing your retirement contributions can become an option, as well as allocating money toward your 401(k) or creating a Roth IRA.
Open an investment account
Not every person has hundreds or thousands of dollars to invest. If starting small is what best suits your financial situation, then try micro-investing. Micro-investing apps allow you to save low sums of money over a certain period of time. This amount will accumulate and help you build a reliable nest egg.
How to start saving in your 40s
Have yet to save for retirement by 40? Don’t panic—it is entirely possible to save enough money by the time you’re ready to retire. Your 40s are typically the years where you earn the most and if you play your cards right, you’ll smoothly enter your 50s, financially prepared.
Has it been a while since you’ve asked for a raise? Know your worth and ask for it. Making a higher salary gives you a better chance of saving enough money for retirement and provides peace of mind. If ends still don’t meet, take up a side project that will generate passive income.
Aside from those recommendations, you’ll need to take a step back and examine your finances:
Stay positive. No amount of debt is impossible to get rid of. If you’ve accumulated bills, credit card debt, and still have loans to take care of, it’s time to buckle down and start paying the balances off.
Don’t know where to begin? Follow a debt reduction strategy like the snowball method. Simply list your debts from smallest to largest regardless of interest rate and make payments toward each debt until all debts are eliminated.
Look into setting up a Roth IRA
For many retirement savers, a 401(k) is their main retirement savings vehicle. If you’ve maxed out your 401(k), consider opening an IRA. An advantage to opening a Roth in 2019 is that the maximum amount that can be contributed has increased by $500. The contributions will grow tax-free and can be withdrawn tax-free while avoiding capital gains tax.
Consult with a financial advisor
In your 40s, strategic financial planning must become a priority if it hasn’t already. By discussing your financial options with an experienced financial advisor, you’ll learn how to allocate your money to meet your financial goals with a plan that works. You’ll discover your options and understand how to navigate financial planning for success.
Balance is key
Having a healthy relationship with money requires balance. This means saving for necessities and saving for that vacation you’ve long dreamed of. Make time for monthly financial planning and rewarding yourself for your hard work. Everyone’s financial situation is unique. Focus on your personal financial goals and most importantly: stay consistent.