Amassing wealth is a long game. It takes years of early saving and investing to make it happen, so there’s no such thing as starting too early or too small. Granted, when you’re first starting out in the real world and you’ve actually landed that professional job with the professional-sized salary, it can be tempting to revel in your new-found buying power. After all, you’re finally covering your rent, your bills and other essentials, so the surplus may seem like “excess cash,” right?
Well, rather than tell you all the things you’re doing wrong, we’re going to pose a few questions and give you a few money saving tips instead. The following insights are intended to help you consider smarter ways to save money that will work for you.
Retirement accounts like conventional 401(k)s let you put pretax earnings away through automatic payroll deductions. Most employers offer matching funds up to a certain percentage contingent upon their vesting requirements. You select the types of investments and risk levels that correspond to your career timeline and financial goals.
For 2020, you, along with your employer, can contribute up to $19,500, reducing your amount of taxable income while building a tax-deferred, money-earning nest egg. Still not sure you can afford it? Forbes warns that “missing out on the employer match could end up being a million-dollar retirement mistake.” When multiplied over the decades, every dollar counts.
Especially if you don’t have access to a 401(k)—or even if you do—Individual Retirement Accounts offer a great way of saving up to $6,000 a year if you’re under 50—$7,000 for people 50 or older. The most common options are Roth IRAs and traditional IRAs.
Each type of IRA comes with its own set of income tax brackets and rules for withdrawals, but if you’re looking for a way to save that prevents you from nickel-and-diming balances, IRAs are a solid solution.
Life rarely goes to plan. Car repairs, an accident, deductibles or down payments, a company downsizing or job relocation, home repairs or even a pet’s illness, for example, can send you scrambling for funds you simply don’t have. An emergency savings account can help. You don’t want a huge amount in there because—let’s face it—regular savings accounts run a bit slim on the interest. However, three to six months’ worth of expenses in a fund that won’t penalize you for a necessary withdrawal is a smart backup plan just in case.
Or, are you buying a whole lot more to sustain a lifestyle you’re supposed to want versus the one you can actually afford? This is where high-ticket items can take a larger toll than expected—especially if multiple expenditures are involved—because credit is different from wealth.
Be clear about what you consider to be needs versus wants. Future needs can and likely will arrive sooner than you expect.
Young professionals are under a tremendous amount of pressure to do everything at once and to do it better than any generation before. However, growing wealth takes patience, perseverance and a plan.
If you’re ready for more personalized money saving tips and banking options that offer real ways to grow wealth, reach out to La Capitol Federal Credit Union and our experienced financial team. Like you, we’re here for the long game—the saving, planning and investing that you’ll need to achieve your lifetime financial goals.