Most of the advice on how to save out there is so complicated and convoluted it can be difficult to even know where to start. Some sources will give you a year-by-year plan that feels so intimidating in its structure that you’ll be left thinking you’ll be working forever with no end in sight. Other sources focus heavily on the end-game (read: retirement) and make suggestions like “you should maintain at least X times your annual expenses by the time you wish to leave the work force.”
Personal finance experts unanimously agree that even if you’re not in a place to save a ton of money, contributing anything to your savings account is a good place to start.
The question that remains is what’s the best strategy for how to save. Instead of taking a one size fits all approach to saving, we tend to think a better approach is to figure out your financial personality and come up with a plan from there.
Strategy 1: The Long-Term Planner
If you’re someone who thrives on structure and planning, this is the strategy for you. According to Fidelity, you should have your original starting salary saved by the time you’re 30 years old. From there, after every five years, your savings should increase by one more factor of your starting salary; for example, if you were to save your starting salary (here, represented by X) by the time you’re 30, you should have 2X saved when you’re 35, 3X saved at 40, and so on. If your savings are still a long way from this point, don’t get down on yourself.
You can always start now by investing and contributing more to a 401(k) or IRA. This is especially helpful if you have a retirement account through your employer and the company offers a match. Take advantage of that opportunity and add in what you need to in order to meet the match for maximum saving potential. If you’re not looking to retirement accounts for future savings, why not invest on your own? There are plenty of ways for you to get started, including using consumer focused investing apps, many of which don’t require much money to get started.
Strategy 2: The Set-It-and-Forget-It Budgeter
Maybe you’ve considered budgeting your earnings in the past, but the minute details always seemed painful to pinpoint. That’s where the 50/20/30 rule comes into play when it comes to how to save – this strategy is great for those who might have a hard time looking at savings in the long run, but who know that they want to build a stable future without thinking about it too much. Think: set it and forget it.
According to the 50/20/30 rule, you dedicate exactly those percentages of your income to specific expenses: 50% goes to the essentials (housing, transportation, groceries), 20% goes to savings (savings accounts, retirement), and 30% goes to more discretionary spending (your gym membership, ice cream on a hot summer day, birthday presents for your friends). While these numbers are great ways to start out, you can definitely adjust them as needed to ensure that you’re making the most of the savings element as time goes on and you’re able to contribute more and more toward that account.
Strategy 3: The “Just Trying To Get Ahead” Debt Tackler
Debt is a heavy topic, and its weary subjects definitely feel its weight. If you’re paying off debt and making an effort to save simultaneously, you deserve a vacation – for real. Before you jet off to celebrate your accomplishment after paying off that last loan or credit card bill, stick with us.
It’s smart that you’re saving on the side as you won’t fall further into debt should an emergency come up and you need a few hundred (or even a few thousand) dollars to handle it. Some experts believe that you should start by paying off your debts that have the highest interest rates. Others recommend attacking your smallest debt first while making minimum payments on the rest and then graduating toward paying off each expense in order of amount owed. If student loans are dragging you down, you might even look toward refinancing them if paying a lower interest rate is feasible at the time. Automating your payments will help ensure that you have everything covered each month – with no surprises – in addition to automating your savings in tandem.
Of course there are many other plans for how to save, and you can even create your own and customize it however you’d like! That’s kind of the point we’re trying to make – savings don’t come with concrete rules, but they’re really handy at the end of the day, especially if you have future goals to accomplish. Get out there and hone your savings skills and reap their many benefits!
Feature Image: The Money Manual