Want a better financial future for yourself? Act now.
As a young person, you have an opportunity to make some major financial strides. You truly have time on your side when it comes to investing, saving and harnessing the power of compounding.
Now’s the time to pay yourself first and do things that could make you wealthy in the future. These savings tips will help keep money in your pocket – and going toward your long-term goals.
The most important of all savings tips: Debt reduction.
This frees up money for the other moves you can make and reduces the money you pay to others each month.
Consider attacking your highest-interest debts first rather than your largest debts. If you have large credit card balances or high-interest loans, that borrowed money may be extremely expensive. Credit bureau Experian says monthly household credit card balances in this country hover around $6,375. According to personal finance website NerdWallet, the average interest rate on a credit card right now is 14.87%. Also, the average U.S. household pays out $904 a year in credit card interest. A constant debt of $6,000 is bad enough, but having to pay roughly another $1,000 a year just for the opportunity to borrow? That really hurts.
Save or invest whatever you can.
Setting aside a little cash for yourself is good, too. You want to build some kind of emergency fund with money you can touch; money you can access right away if you need it quickly.
Many retirement savings vehicles offer you tax breaks.
For the average workplace retirement plan or IRA, money within the account grows tax-free and comes out of your paycheck before taxes. You only pay taxes on the money when it is withdrawn. In addition, many employers will partially match your contributions if you meet a certain minimum. Roth IRAs and workplace plans allow both tax-free growth and tax-free withdrawals, provided Internal Revenue Service rules are followed. While you get no up-front tax break for contributing to a Roth account, you also have the potential to withdraw the money tax-free for retirement, which is a great thing.
Not using these saving and investing accounts could be a big mistake.
Some people are skittish about Wall Street investments. However, largely speaking, those are the kinds of investments that have the potential to return better than five percent a year. In fact, the S&P 500, the broad benchmark of the stock market, gained an impressive 19.42 percent in 2017.
Parking too much money in cash and avoiding all risk can come with an opportunity cost. Sallie Krawcheck, the former president of the investment management division of Bank of America and CEO of Ellevest, made the following estimate. A woman making $85,000 annually who puts 20 percent of her salary into a bank account rather than investing it could forfeit more than $1 million after four decades.
Now is the ideal time to plan to get ahead financially.
Think about your future, and take advantage of these and other savings tips that give you the potential to make it bright.