When you’re in your 20s, the last thing you probably want to think about is saving for the future. From your monthly rent to your credit card bills and insurance payments, you might be living paycheck to paycheck but if you begin saving early, you can achieve financial independence much earlier than most of your friends.
Saving for retirement begins by taking steps to curb your spending, but you don’t need to dramatically change your lifestyle to make responsible financial decisions. Here are five tips to help you save for the future:
Though retirement is still decades away, if you start saving in your 20s, you’ll have a nice sum of money saved away which will give you more flexibility in the future. If your employer offers a 401k program you should sign up and contribute as much as you can. If you put $4,000 a year into a retirement account with 8 percent annual returns, starting at 22 years old, the calculated amount you will have by the time you are 62 years old is close to $1 million. If you choose to start saving for retirement at 32 years old, you’ll have to more than double your annual contributions to reach $1 million. To calculate how large your retirement savings will be if you start saving now, you can use this 401k savings calculator.
Although you have a steady paycheck, you should still live as frugally as possible during your first few years out of college. Instead of furnishing your apartment with the latest from Crate & Barrel and Williams-Sonoma, consider shopping at IKEA and other discount retailers. Living on a budget will not only help you get a better handle of what you can really afford, you can also use the money you save for bigger things like buying a new car or paying off some of your student loans.
Because of interest, your credit card debt and student loans can double in a few years. Consider setting deadlines and dedicating a percentage of your paycheck to pay off your debt, this way you can plan these payments into your budget and adjust your spending accordingly.
Although you should avoid spending money on unnecessary things like shopping sprees and high-end appliances, you should never skimp on the important things like health insurance, auto insurance and renters insurance (if you live in a rental property). To save money, check into purchasing your insurance policies from the same company since some companies offer a multi-policy discount if you qualify.
Whether it’s going to the mall or stopping for groceries, impulsive shopping can happen anywhere and before you know it, you’ll have spent your entire paycheck on unnecessary items. So next time you go shopping, make a list of everything you need and stick to the items on the list. And once you get into the store, have the willpower to avoid purchasing anything not on the list, even if it’s a good deal or heavily discounted. To save more money, consider looking through your local circulars and finding coupons for the items you need before you head to the store.KathyD is a guest blogger. In exchange for sharing this content, GoodHandsCommunity.org has compensated her via cash payment.