So when your parents or people a little bit older are telling you to start saving now, it’s very tempting to brush them off. You just got this nice influx of cash, why would you want to automatically put it away when you can use it on concert tickets or to travel across the world?
While not fun to think about, you are going to be older some day. And we’re sure you’d hate to look back and think, “Wow, I wish I would’ve saved more in my 20s.”
In this article, we’ll tell you why you should start saving early and how much to save without having to sacrifice your current lifestyle.
Quick Article Guide:
Reason #1: Your expenses will continue to increase
With age comes more and more responsibility. Car insurance, health insurance, life insurance, cell phone bills, rent and utilities, deposits and down payments, the list goes on. If you start saving now, you’ll have a head start on all those expenses (and probably be thankful that you did).
Reason #2: You’ll lose any potential interest you’d earn
When you save for the future or your retirement, all the money you set aside earns interest over time. If you don’t start saving until later on in life, interest won’t have as much time to accumulate, and you’ll lose a bunch of potential extra cash that you would have earned had you started earlier.
Reason #3: You won’t have anything to fall back on if you lose your job
A lot of people make the mistake of spending almost all of their entire paycheck each month, rationalizing it because they’re “safe” at their job. What if something happens, and you end up losing that job?
A good rule of thumb is to have enough savings for 3 months without a salary coming in. So if you spend $3,000 a month, having $9,000 in savings will (hopefully) get you through until you land your next job.
Reason #4: You’ll be investing in yourself
Not many young adults want to hear the word “invest,” but hear us out. Putting money aside each month could be to your advantage in a few years when you want to say, purchase a condo. It doesn’t have to be a huge amount of money set aside either; maybe instead of going out to eat 5 times a week, you go out to eat once or twice and use that extra money to invest.
Reason #5: Lifestyle inflation
Generally speaking, the more you earn, the more money you spend. This habit is quite hard to reverse, and may leave someone having a difficult time reaching their goals and always wishing they had more money. Putting money aside may offset this feeling.
Reason #6: You’ll regret it later
As you can probably tell from the last 5 reasons, there’s an underlying theme. We’ve never heard anyone say how glad they were that they didn’t start saving early, but we have heard quite a few people say how much they wish they had started saving earlier. You can save yourself this headache and get ahead of the game by starting now.
Now that you’ve heard about why you should be saving, how much exactly do you need to save?
Start with 10%
Many experts say to start saving with at least 10% of your income. Ideally you’d like to increase that number over time, but it’s a good general number to start off with. For example, if you make $4,000 a month, you’d set aside $400 for savings.
Make Sure it’s a Comfortable Amount
If 10% seems like too much for you right now, reduce it to 5%. If it seems like it’s too easy and you could put away more, bump it up to 20 or 30%. You want to save enough to have a significant effect later on in life, but you don’t want to be saving so much that you don’t have enough to buy groceries or gas each week.
Don’t Forget About Pre-Retirement
When people talk about saving, they most always talk about it in relation to retirement. But there are quite a few years between your 20s and retirement, and it’s important to save for events during that time as well.
We mentioned earlier saving about three months worth of expenses for an emergency fund. In addition, it’s smart to set aside money for things like a down payment on your home, or that business idea that’s been lingering in your mind for a while.
In regards to retirement, maybe you want to retire earlier than 65. In that case, you’ll need to have additional money set aside that’s separate from your retirement savings (which you can’t access without a penalty until you are at least 59 ½ years old).
We get it, this stuff isn’t exactly fun to think or talk about. But imagine how good you’re going to feel when you start setting aside money for retirement and other savings. By investing in yourself and your future, you’re creating opportunities that wouldn’t be there if you spent your entire paycheck each month.
It’s like when you’re a freshman in high school, and everyone tells you to work extra hard that year, as your freshman GPA creates the baseline for the rest of your time in school. The same thing goes with saving. Putting money aside while you’re young and have more time to accumulate creates an easier path for you down the road as you get older, and could save you from having to work past age 65.
So do yourself a favor – start saving today.
JRC Insurance Group is an independent life insurance agency, and a top seller of term life insurance. Our staff possesses a collective experience of over 49 years in the life insurance industry. We work with over 45 top-rated life insurance companies, which offer a wide variety of plans for a wide variety of purposes, both individual and commercial.
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