How To Save When You’re Young

Businesswoman saving moneyIt’s hard to save money when you’re young. If you’re lucky enough to have a job, you’re probably not overflowing with cash. With a ton of young and talented job seekers, companies also have little pressure to offer generous starting salaries.

Meanwhile, apartment rents have steadily risen for 23 straight quarters, and life’s other inevitable expenses — utilities, food, taxes, etc. And these haven’t gotten any cheaper.

Let’s not forget educational expenses too. Inflation in college tuition has massively outpaced broader consumer price inflation for decades, meaning most college graduates start their careers with large student loan debts hanging over their heads. A recent poll found that college graduates finish their studies with an average debt load of $35,200. And if you are the ambitious type who decided to go to graduate school, you might have multiple hundreds of thousands of dollars in student loan debt.

Still, the savings you manage to sock away while you’re young will have an outsized effect on the lifestyle you’re able to live when in middle age and your golden years.

Pay Yourself First.

Humans are hardwired to expand our spending to absorb any increases in income. In order to mitigate these impulses, you have to “pay yourself first” by allocating your first dollar of income to savings rather than your last. Figure out a dollar amount that you want to save, and set it aside before you budget your regular monthly expenses.

If your employer offers a 401k plan, this is easy enough to do. Your 401k contributions come out of your paycheck before you have a chance to spend them. Not including the value of employer matching, if your employer offers this – is an “out of sight, out of mind” way to save for your retirement one day.

Even contributing $500 per month to savings will get you to $6,000 per year, and many young workers can try to make do with $500 less per month.

Make it Automatic.

Very closely related to paying yourself first is making your savings as automated as possible. For example with a 401k plan, this accomplishes both. Once you set your contribution limits, your company’s payroll department will take care of the rest. It’s automated, and you don’t have to think about it.

But what if your company doesn’t offer a 401k plan? There are plenty of other ways to automate your savings process. Often times, your payroll department will allow you to split your paycheck among two or more accounts. This will allow you to automatically divert whatever sum you can afford away from your primary checking account and into a savings or investment account.

You can also generally instruct your brokerage account or savings account to automatically draw from your checking account on a specified day every month. The key here is automating the process so as to remove your discretion. If you have a real emergency, you can always suspend the automated instructions for the time being. Otherwise, you have made saving part of your monthly routine and made it a lot harder to throw the money away on something frivolous.

Slash Your Budget.

Let’s face it, it can be easier said than done when your monthly bills seem to get bigger every month. Here are a few concrete examples of how to save without crimping your lifestyle too badly.

First off, ditch cable TV. Most of the programming you watch is probably available for free over the airwaves or at a very modest cost with Hulu Plus or Netflix  after a short delay. And the handful of shows not available probably aren’t worth the $100 per month or more you’ll pay in cable bills. If you can’t live without HBO, chances are good that one of your friends or relatives has a subscription that you can borrow from time to time.

Also, try to put off a new car purchase as long as possible. If you take reasonably good care of your car, it will last you 150,000-200,000 miles. Not only will you save money on a car payment, but the older your car the less insurance coverage you will need. And when you finally do need to replace your wheels, buy a late-model used car rather than a new one.

Did you know at First Financial, our auto loan rates are the same whether you buy new or used? Be sure to check them out today, and if you like what you see – you can apply for an auto loan online 24/7.*

Consider cutting your rent and utilities bills in half by having a roommate. Chances are, you did it in college. Why not share an apartment for a few more years? The average apartment rent is more than $1,000 per month, and it is considerably more in the popular urban cities that attract younger people. Cutting that bill in half will make reaching your savings goals a lot easier.

*A First Financial membership is required to obtain a First Financial auto loan and is available to anyone who lives, works, worships or attends school in Monmouth or Ocean Counties. Subject to credit approval.

Article Source: Charles Sizemore for investorplace.com, http://investorplace.com/2014/12/how-to-save-when-youre-young/#.VL65zNLF8uc

 

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