In my previous post, I shared the importance of starting to save and invest early in your 20s in order to harness the power of compounding. Now, it’s time to get practical. Saving money, especially when you’re on a tight budget, can be challenging, but it’s not impossible. Let’s explore some actionable strategies to help you kickstart your savings journey.
Create a Budget: Ugh, I know. But the foundation of any successful savings plan is a well-thought-out budget, or as I prefer to call it, a spending plan. Begin by tracking your income and expenses to understand where your money is going. This will highlight areas where you can cut back, where you can save, and where you are doing a great job.
Sounds like a chore? Then I recommend grabbing an app to help. Mint is highly ranked and popular. It tracks everything and you can personalize the categories. Another great choice is YNAB. This app follows the principal of zero-based budgeting. This is a method where you give each dollar a “job” and zero out your paycheck. Don’t worry – that doesn’t mean you spend all your dollars ! Instead, you allocate a certain percent to savings and/or investing.
The main thing is to start. And whatever path you take with this, make sure it is something you will commit to.
Emergency Fund: Before you start investing, build an emergency savings fund. You’ve probably heard this sage advice before. I assure you, when an emergency comes, and it will, you’ll be thankful you set this in place. Having this financial cushion can prevent you from dipping into your investments in times of need. The rule-of-thumb is to aim for at least three to six months’ worth of living expenses. That may sound overwhelming, if so, chunk it down into smaller goals – accumulating one month, then two, and so on.
Start Small: You don’t need a large sum to begin investing. You also don’t need to have all your debt paid off to start. It’s a tricky balance in reducing debt and building savings and investments at the same time. Perhaps each month you commit to reducing debt (above the minimum payments) by $200 and save $100.
As you prepare to invest, you do need to do your homework and also seek wisdom from those you know who are successfully managing money and financial professionals. As you explore, look for investment options with low minimum requirements, or consider micro-investment apps that allow you to invest small amounts regularly.
401(k) or IRA: How about some free money? If your employer offers a 401(k) plan with a matching contribution, take advantage of it. If you aren’t familiar with matching, many employers will match your contribution up to a certain percent or dollar amount. It’s essentially free money that along with your contributions, can grow over time.
If your company doesn’t offer a retirement plan, consider opening an Individual Retirement Account (IRA).
Automatic Contributions: I’m not sure how we survived before autopilot! Set up automatic transfers from your checking account to your savings and investment accounts. This ensures that you consistently contribute to your investments, even if it’s a small amount. You can always add more manually.
Educate Yourself: Take the time to learn about money and finances as well as different investment options and strategies. Knowledge is your most valuable asset when it comes to investing.
Starting to save, even if on a small budget, is a commendable and achievable goal. By following these practical steps, you can begin your journey toward financial security and a brighter future. And you’ll be amazed at the confidence and peace you’ll gain. Remember, the key is consistency, discipline, and a long-term perspective. While it isn’t a get-rich-quick plan, your financial goals are within reach, no matter where you start.
If you have any questions or would like to explore different options and strategies tailored to your specific circumstances, don’t hesitate to reach out. I’m here to help you take the next steps towards securing your financial future. Feel free to contact me anytime to discuss your financial goals. Your financial success is my priority!
