Why a Saving Strategy Should Be a Priority
There’s never bad time to start a savings plan.
“Savings can provide peace of mind and make stressful situations easier to manage,” Derik Farrar, head of personal deposits at U.S. Bank, said in an email. It’s always a good idea to have some savings stashed away for unexpected emergencies.
“Getting a flat tire is stressful, but not having the cash to buy a replacement will only add to the stress,” Farrar said. “Same with a medical bill, insurance deductible etc. Your options to deal with difficult, often unexpected, situations improve when you have cash available to manage through the situation.”
How to Create a Saving Strategy
Now is an ideal time to create a savings strategy to help you prepare for life’s unexpected situations, grow a nest egg and build wealth.
“Saving money isn’t easy. It’s deeply concerning when you hear from people who don’t have enough money saved for an emergency,” Christopher Starr, head of consumer and small business deposits at Wells Fargo, said in an email. Saving money is foundational to planning a secure, financial future, he said.
According to a recent report from the National Institute on Retirement Security, more than half (55%) of respondents said they are concerned about their financial security after retirement, and 73% said inflation has made them even more worried.
“That’s why the practice of saving money remains as profoundly important as it ever has been,” Starr said.
“Starting the practice of saving money — even a small amount every month — is the first step to help you protect and build wealth. It gives you a sense of security and peace of mind knowing that you’re saving money to reach your future goals, as well as to build a cushion in the event of unexpected life events and emergencies,” he added.
What is An Emergency Fund and Why Should You Have One?
An emergency fund is money that is earmarked for emergencies, such as paying for an unexpected medical expense or home repair, losing your job or covering a roommate’s rent if they unexpectedly move out, Farrar said.
“It’s important to have an emergency fund because not having enough saved for an emergency can snowball into unpaid bills that can harm your credit, racking up expensive credit card debt, and dipping into funds earmarked for other savings goals like retirement,” he added.
[READ: How Much Should You Save In an Emergency Fund?]
Develop a Personalized Saving Approach
One way to begin saving is to create a budget that allows you to get a better handle on your current financial situation, Natalia Brown, chief compliance and consumer affairs officer for National Debt Relief, said in an email.
Begin the process by creating a budget worksheet with your total monthly income and expenses.
“By subtracting expenses from income, individuals can get an initial idea of how much they are able to save,” Brown said. Individuals should also include all of their debts, such as outstanding balances, minimum monthly payments and interest rates, she added.
Here are some practical steps to help you develop a saving strategy:
— Set a realistic savings goal. Whether it’s building an emergency fund, saving for the next vacation or the down payment on a home, creating a concrete goal that is meaningful will help give direction to the saving approach, Brown said.
— Allocate funds for the future. “Create an area in the budget worksheet where income will be allocated each month to start building and maintaining savings,” Brown said. “This will keep it as a priority in your budget.”
— Pare down spending. For those looking to save more, Brown recommended cutting back on expenses by eliminating what is nonessential. “This would allow individuals to increase their ability to save and more quickly reach their financial goals,” she continued.
— Avoid going on a starvation budget. As you cut expenses, be sure to find low cost or free options for the things you love, she suggested. “When we cut back too much we eventually get to a miserable place and revert back to old habits,” added Brown. “Budgets should not feel like you are a prisoner — think of a budget like guardrails.”
[Related:Wants vs. Needs In Your Budget — How to Tell the Difference]
Suggested Savings Directives by Age
Here are some ideas for how to save as you age:
In Your 20s
When you’re in your 20s, retirement seems like it’s so far in the horizon. Here’s how to save so you’re prepared for life’s journey.
Set a budget. A good starting point is to familiarize yourself with your cash inflows and outflows, Emily Irwin, head of advice relations at Wells Fargo, said in an email.
Build an emergency fund. Some surprise setbacks come with a large and unexpected price tag. “Pay yourself first by setting aside a certain percent of your income in a savings account so when the unexpected, but inevitable, expenses arise, you have cash readily available,” Irwin said.
Contribute to future wealth. If a 401(k) is available to you with an employer match, be sure to make every effort to contribute at least enough to earn the company match, Irwin said.
In Your 30s
This decade can be a transitional time for many. Invest in your short-term and long-term goals.
Get cozy with compounding. Understand the effect that compounding can have on an investment account, and how it can fund your lifestyle, future financial goals and retirement, Irwin said. Aim to set aside a certain portion of your monthly income into a non-retirement investment account, she added.
Clean up your credit. Pull your free credit report to ensure that you’re building strong credit, which needs to be done methodically over time and can help you save money when you need to access loans for a big purchase, like your first home, Irwin said.
In Your 40s
This decade often is intertwined with marriage, children and other life changes. Proper planning is key.
Tackle death and disability planning. While paying life or disability insurance premiums may not immediately “save” you money, Irwin said to consider how income is earned in your family: Is there a single income earner? Is there a disparity in income earned? “Be sure that you have enough coverage if you became ill or passed away to fund everyday expenses like mortgage payments or rent, as well as future expenses like college tuition,” she said.
Plan for education funding. If you have children, Irwin said to consider establishing a 529 Plan where you can save for education in a tax-advantaged manner.
In Your 50s
Many people are becoming empty nesters at this point and are inching toward retirement. It’s time to strengthen your financial footing.
Make catch-up contributions. “Congratulations, turning 50 entitles you to be able to make catch-up contributions (up to $7,500) to your retirement plan,” Irwin said. “And you can make those catch-up contributions starting on January 1, you don’t have to wait until your birthday.”
In Your 60s
It’s time to enjoy your golden years.
Explore options concerning Social Security. Irwin said to determine when your full retirement age is, and if you’ll take Social Security early or wait to maximize your payment.
In Your 70s and 80s
Welcome to retirement, grandchildren and even great-grandchildren.
Consider qualified charitable distributions. If you’re charitably inclined, then a qualified charitable distribution (QCD) may be advantageous if you’re 70 ½ or older. “A QCD is where you make a distribution to a charitable organization directly from your IRA and such distribution typically can be counted towards satisfying your required minimum distribution up to a certain amount,” Irwin said.
Utilize your annual gift tax exclusion. If you want to make gifts to family or friends, you may give up to $18,000 per person in 2024 without having to pay any gift tax on the gift, Irwin said. “This can be a meaningful experience for the giver because you can see your dollars at work, and has the corresponding benefit of reducing your total estate, which could be subject to state or federal estate tax upon your death.”
It’s important to note that with both the QCD and the annual gift tax exclusion, you’re saving money by redirecting assets from your own estate to an individual or charitable organization, Irwin said.
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How to Create a Saving Strategy originally appeared on usnews.com
