Time is your friend, and procrastination is your enemy. If I had a nickel for every time I heard, “I wish I’d started saving sooner,” I’d be rich(er). The earlier you start saving for your financial goals the easier they will be to achieve. Procrastination often leads older investors to take unwanted risk, which may cause them stress when the market fluctuates. On the other hand, starting early and setting up a sound financial plan can help you make smart and informed financial decisions throughout your life. Perhaps more importantly, it will help you avoid many of the ditches 20-somethings have been known to dig themselves into and then out of during their 30’s, 40s and 50’s.
I have a bunch of “rich” looking friends, and just as many “poor” looking friends, and rarely does the image fit the true health of their finances. It’s not about how much you make, but rather how much you keep. Regardless of your income, if you don’t save anything you will never accumulate wealth. Keep a bit of the starving student mentality, and live below your means. Find an experienced certified financial planner (CFP) to help you develop a plan to save ideally 10% or more of your pre-tax income.
Start Saving Something
Get started no matter how small. Even if it’s $50 per month, it’s a starting point, and you can build from there. Statistics indicate that most of you reading this are spending more than you make at the moment. That’s quite easy to do when saddled with student loan debt, lingering and growing credit card debt, and major purchases adults often make (new car, furniture, and booze). At an absolute minimum, make sure you take advantage of a contribution match that may available on your company 401k plan. It’s like getting free money. A big trick is to incorporate saving into your budget, before you get used to spending the money.
When I was 22, a friend sat down with me and helped (forced) me set up an automatic contribution to a mutual fund. My contribution was a whopping $25 per month but even that tiny amount began to grow. Today, I save much more.
Get a Handle on your Debt
Debt is a four-letter word. There are uses for planned debt that can aid your financial plan, such as a mortgage or business loan. On the other hand, credit card debt is like stepping into quicksand. Once you’re in, it’s easy to get behind and just as easy for things to get out of control with interest rates often in the 20-30% range. For example, $10,000 in credit card debt, at an annual percentage rate of 30%, would cost you $250 per month. That only covers the interest. It doesn’t even reduce the $10,000 owed.
What else could you do with $250 per month? Buy a new car? Save for retirement? Take a couple vacations each year? Go to dinner with friends?
Build an Emergency Fund
To help avoid that dirty word ‘Debt’ being attached to your financial plan, set up an emergency fund. Set aside the money and don’t touch it unless it’s an emergency. We can argue all day whether that amazing jacket on sale is an “investment”. By the way, it’s not. But I can guarantee you that the jacket on sale is not an emergency. Ideally, single individuals will have three-to-six months of expenses saved for emergencies. It should be somewhere you can get to it, if needed, but not so easily accessible that you spend it.
Look for ways to keep more of your hard-earned money
Find ways to keep more of what you make. All those little things add up. A basic day with coffee in the morning, a “cheap” lunch at Subway, (not counting a snack or dinner) and you’ve easily spent $15.00. Five days a week, fifty weeks per year, and you have spent nearly $3,750. Add an occasional happy hour or dinner, and you are spending beyond the maximum contribution to a Roth IRA or traditional IRA just in this little segment of your budget.
The best advice in the world is worthless if you don’t act on it. Take some time to review your financial situation and take steps towards reaching your financial goals. Start saving today and make it automatic. Invest the same amount of money, each month, automatically so it actually happens. Your older self will thank you.