Financial Fitness Friday: Savings Tips, Especially For Millennials
It is important to identify what your short, medium, and long-term goals and needs are. Think of each goal as a bucket that you are trying to fill. Each bucket is a different size. The bucket for your emergency fund will be smaller than your house down-payment bucket, which in turn will be smaller than your retirement bucket. Managing ones finances is about trade-offs, prioritizing, and adding to as many buckets as you can with your limited resources. You may have to accept that you cannot put money into every bucket every month, so you have to weigh the trade-offs. Do your best to live within your means. You also need to know yourself and what brings you peace of mind and what keeps you up at night. I suggest the following prioritization:
Open two savings accounts: one for an emergency fund to cover at least three months of expenses and the second to save for other goals (vacation, house, car, etc.) and have money transferred in automatically every month to each account
Contribute to 401(k) plan (your largest and long-term bucket) in amount at least up to your employer’s match (if there is one) and try to target saving 10% of your gross income (including the employer’s match)
Payoff credit cards with high interest rates as quickly as you can
Pay your student loans (start with the monthly minimum amount)
If there is money left over at the end of the month, add it to savings, payoff more debt, or invest it for the long-term
I cannot stress enough the benefits of automatically transferring money directly to your savings account. Left to our own devices we find it easier to spend than to save. Also, do not feel like you have to save thousands of dollars every month. Save what you can. Over time it will add up. Also, try to save 50% of any “found money”, whether it’s a company bonus or birthday check from grandma. Have fun with the other half!