Whether you’re just now entering your young adult years of your 20s or you’re moving into a new, more settled decade of your life in your 30s, it’s never too late to start thinking about a good savings plan.
It can feel a little overwhelming if you’ve never thought about savings strategies for retirement or how you can set some money aside for emergencies. But rest assured, it’s not as difficult as you think! We’re here to give you a few ideas on how to build the best savings strategy for your situation, no matter how old you are.
How much should I have saved by the end of my 20s and 30s?
Strictly speaking, there’s no exact amount that you should have saved by the end of your first couple of decades of adulthood. What you can put aside will come down to earnings, your lifestyle, where you live, and other factors like how much student loan debt you have or any other debts you might be paying off.
But remember, the sooner you start saving, the more you’ll have. Take advantage of compound interest and start your big savings goals, like retirement, early so that by the time you need that money, you’ve had the longest time possible to benefit.
If you’re looking for a fixed dollar amount, experts recommend saving at least one year’s worth of salary by the time you’re 30. This could be across multiple savings accounts though, from retirement accounts to your emergency fund. By the end of your 30s, you should be looking at around three times your salary.
These are simply guidelines though and if you’re not there yet, don’t worry. As you grow in your career and pay down debt, you should have more disposable income to hit your savings goals.
How much should I have saved for retirement?
Like any other savings, how much you’ll need for retirement is going to depend on the lifestyle you expect to be able to maintain, where you plan to live, and what debts you’re able to pay off before you retire. Assuming a 40 to 45 year career, most recommendations are to save around 10 to 15% of your pre-tax income each year.
By the time you retire, you should be looking at around 25 times your expected retirement expenses. For example, if you expect to need $50,000 a year to live on in retirement, you should have around $1.25 million saved. This amount assumes an annual withdrawal rate of around 4%.
How to save more money this year
Set a budget
Before you can think about any savings goals, you’ll want to put together a realistic monthly budget to track your income and expenses. Assess what you’re spending money on each month and whether there are any areas you could cut to add some extra funds to your savings or to pay off debt faster.
Once you have your budget mapped out, you can start to think about what your short and long term savings goals might be. Now that you have a better idea of your spending habits, you can more accurately make plans for the future.
Creating a budget isn’t only about tracking your expenses—it’s about making intentional choices. Categorize your spending into needs, wants, and savings.
A common budgeting rule that many people choose to follow is the 50/30/20 rule. This is where 50% of your income goes towards your essentials, like housing and bills, while 30% is allocated to discretionary spending (fun money, in other words!). The remaining 20% goes towards debt repayment and your savings goals. Over time, as your debt goes down and income goes up, you may choose to allocate a larger percentage towards savings like a 50/25/25 plan.
Another good strategy once you have your budget outlined is to automate your savings. Login to your online banking and set up an automated transfer from your checking account to your savings account for the minimum amount that you want to save each month. You can always add more if you have extra funds throughout the month, but this will at least keep you saving throughout the year.
Start an emergency fund
Having an emergency fund is one of the best savings strategies for preventing any big financial setbacks in the future. Car repairs, medical bills, or any other unexpected expenses can make a large dent in your savings if you’re not prepared.
The goal when you first start saving is around three to six months of living expenses, but if that’s not possible right now, any additional funds you have in your budget are a good start.
Consider putting this money into a high-interest savings account since the aim here is to leave it alone and not spend it on anything. In a high-interest account, you’ll earn better interest than a traditional savings account, but still have the option of withdrawing this money if you ever need it. The key here is to separate this money from both your everyday spending money and other short term savings so you’re not tempted to spend it.
Start a retirement account
The first place you’ll want to start investing is in your future, specifically your retirement. If you already have an employer-sponsored 401(k) plan, think about opening an individual retirement account (IRA) to complement this. Even small contributions can accumulate significantly over time thanks to compound interest, so start saving for retirement as early as you can.
Once you reach your 30s, you may want to look into other investments that could support your retirement plans. Diversifying your portfolio and working with a financial advisor to manage this can help you find the best options for your goals and financial situation.
If you don’t have access to a traditional 401(k), IRAs can also be a good alternative. A Roth IRA in particular can be helpful, as this is funded with post-tax dollars and so will give you tax-free withdrawals when you retire. This is ideal if you expect your tax rate to increase as you get older.
Pay down debt
Review your budget and the current debts that you have to start seeing where you might be able to add some extra to the principal repayments. Paying off your debt sooner not only frees up that money to put towards savings, but it also means you’ll be paying less interest over time.
Credit cards, student loans, car loans, and even mortgages can all be paid down faster than your allocated repayment schedule if you have the extra money to do so. Find a debt repayment plan that works best for you.
You might want to start paying extra on the biggest debt first or work on the smallest and incrementally move towards the biggest ones. You could also start by repaying the ones with the highest interest rate to save yourself some more money.
Think ahead
Once you’ve worked on some of the biggest financial hotspots like retirement and paying off debt, you can start thinking about other money goals you might have. Do you know you want to have an expensive wedding that you can start saving for now? Or perhaps you’d like to buy a home and need a down payment in your savings account. On a smaller scale, you might want to save for a vacation or new car.
Setting goals with specific timelines can help motivate you to save more, while also making saving more achievable. Consider using different savings accounts for your goals so that you don’t accidentally spend your home downpayment on a vacation!
Whatever your goals are, make a plan and account for them in your budget. This means that you’ll be able to achieve those goals much faster, while also taking into consideration the larger goals you’ve already set for yourself.
Open a high interest savings account
With all of these savings goals, you’ll need somewhere to actually put your money. Consider opening a high-interest savings account, rather than a standard savings account, to maximize the amount of interest you’re getting.
Certificate of deposit, or CD, accounts can be a great option if you know you don’t need to withdraw that money for a fixed amount of time. These typically offer higher interest rates since the money is locked in. A CD laddering strategy can be an excellent way to make the most of these savings.
If you need more regular access to your savings, a money market account could be a good alternative to a CD. You’ll be able to make up to six transfers a month and still benefit from higher interest rates compared to a traditional savings account.
Start Working Towards Your Savings Goals Today with The First
When you’re ready to get started with saving or look at options that better fit your financial situation, contact the team at The First National Bank and Trust Company of Newtown.
Our team can answer your questions and help you open a new savings account, get started on retirement savings, or earn more interest on your money. If you’re looking for a loan to help with debt consolidation, we can discuss options like a home equity loan that can support you right now.
Contact us today to get started or visit one of our locations in Bucks County.
