Chances are, if you’ve recently graduated from college or trade school, you’ve probably been at your first “9-to-5” job for a year or more and are getting a sense of budgeting, planning, saving, and preparing for the future. Or, perhaps, you went straight into your career path right after high school graduation and you’re considering when’s the best time to consider getting your own place? Whatever your situation looks like right now, there’s one thing that everyone can probably learn a little bit more about—saving money.
Yeah, yeah, we know. Saving money doesn’t sound quite as glamorous as spending it. However, in order to afford to live on your own, save for a down payment on your first home, plan for your dream wedding, or get a new set of wheels, you’ll need to discover the fine art of budgeting and saving. Although many of us agree that saving money is pretty important, the stats are showing that we, as a nation, haven’t exactly put it at the top of our “to-do” list.
There are different major savings “buckets” that most adults, regardless of where they’re at in their financial journey, should work to establish:
1. Emergency Fund. It’s estimated that 60% of Americans do not have $500 saved to use in an emergency, such as a car or home repair, while 25% have nothing saved at all. It’s a good rule of thumb for most adults to have a savings fund built up to cover three to six months of living expenses should an unforeseen event occur, like a job loss. Consider setting up auto-savings to a qualified, FDIC-insured savings account, like a Certificate of Deposit or a high-yield savings account, to help build up an emergency savings fund. Calculate how long it will take you to reach your emergency savings fund goal.
2. Retirement Savings. Retirement may seem far off, but the earlier you start saving for retirement, the better positioned you’ll be for the future. Have you taken full advantage of an employer-sponsored retirement plan or another plan, like a tax-advantaged Individual Retirement Account (IRA)? Ideally, start by saving what your employer’s match is toward your retirement. As you receive pay increases, slowly increase the amount of your retirement savings. The goal is to be directing 10 – 15% of your salary toward retirement. Get started saving as early and as much as possible. Remember, thanks to compounding interest, time is your friend!
3. Home Down Payment. Most homeowners should aim to save 20% down for a new home purchase. Although there are exceptions, like if you qualify for first-time homebuyer or Veterans Administration (VA) home loan financing, having enough saved to cover the down-payment, closing costs, and moving expenses just makes smart financial sense. You’ll also want to consider the cost of owning the home, the furniture and home furnishings for it, and any updates or repairs that may need to be made now or down the road.
4. New Car Purchase. Buying a new car can be both exciting and a little scary. Cars, cross-overs, trucks, and SUVs can all be quite pricey so do your homework on the best one to buy for your money. Look at online reviews, safety ratings, warranty options, fuel mileage, and the best type of vehicle to purchase for your needs. Aim to save for a 20% down payment on the purchase of your car. Shop around for low, fixed auto loan rates before you ever go to the dealership.
If you haven’t already, work to develop a monthly budget. Factor in your current salary, credit card payment(s), mortgage/rent, living expenses (like gas and groceries), fun money, student loans, and savings. This should help you determine how much you can allocate to your savings buckets.