The financial struggles today's 20-somethings face are bigger and scarier than those of past generations-overwhelming student debt, a highly competitive job market and an economy still pulling itself out of a recession.
On the other hand, these tough circumstances have taught young people valuable lessons about money, making them more inclined to save and giving them a more frugal approach to managing their money.
In fact, a new survey from Bankrate®.com found that 20-somethings are saving more than any other age group. 62% are saving more than 5% of their income-a 48% jump from last year, when 42% of 20-somethings reported similar savings rates to Bankrate®. Their savings rate also outpaces that of adults over age 30.
This focus on savings can give young people a major advantage. Well-padded savings and retirement accounts will let you achieve your financial goals and keep you free of financial nightmares like debt, bankruptcy and bad credit-if you're smart about it. Here's how to start:
1) Develop a Savings Habit
Put a little bit (even just $20, if that's all you can spare) of each paycheck into your savings account before paying your bills. Begin by saving small, painless amounts and watch your balance grow. That'll motivate you to find more money to sock away.
Be sure to break your savings goals (like buying a home or taking a vacation) into small steps. Know how much you need to put away each month and use those goals to keep you on track and avoid unnecessary expenses.
2) Make Sure You Have an Emergency Fund
Paying down loans or paying into your 401(k) won't matter if you're in a bind and need money you simply don't have. Start with an account buffer (one to two weeks of your income) and gradually work your way up to an emergency fund. The experts at Kiplingers.com recommend stashing enough to pay three to six months' worth of expenses in an easy-to-access savings account.
That'll keep you from using money socked away for other goals or-worse-going into debt.
3) Start Saving for Retirement Now
Retirement can feel like it's a lifetime away. And it is, but that's exactly why you should start thinking about it now. By getting a solid foundation in place early, you set yourself up to cruise to a far more comfortable retirement than anyone who waits until their 30s or later to start saving.
Based on Nerd Wallet's calculations, small increases make a big impact:
- A 23-year-old who begins saving 10% today can shave five years off retirement age, amassing enough to leave work at 70. Saving 4% more per year amounts to $2,000 on a $50,000 salary; that's about $165 a month.
- If a 23-year-old can save 15%, it will pay off with a 10-year difference, bringing retirement age down to 65.
- Someone who hits it out of the park and saves 20% or more could retire as early as age 62, today's average retirement age.
4) Automate Your Savings
If you know you need to save but are having trouble actually doing it, take advantage of one of the many tools out there that will help you automate your savings. Letting technology work to save money for you takes much of the stress and effort out of the equation, saves time, and makes it easier for you to achieve your goals.
Remember, now is the time to establish a strong foundation for financial success. The younger you are when you begin, the more likely you are to achieve financial security later in life. So do yourself a big favor, and start making financial moves now that will help maintain your peace of mind in the decades to come.
The information mentioned in this article is for informational purposes only, is intended to provide general guidance and does not constitute legal or tax advice. Each person's situation is unique and may materially differ from the information provided herein. You should seek the advice of a financial professional, tax consultant and/or legal counsel to address your specific needs before any financial or other commitments regarding the issues related to your situation are made. Popular Bank does not make any representations or warranties as to the content contained herein and disclaims any and all liability resulting from any use of or reliance on such content.