The rising cost of living has made it not only harder to stay ahead but also more difficult to get started. Between paying for college or car repairs, sometimes it can seem impossible to save up for the future. However, it’s important to remember that every little investment can help bring you closer to your life milestones.
At United Financial, we want to help you get where you’re going faster. Let us share a few tips that can help you plan out your finances, so you don’t have to feel behind.
Develop a Budget
Creating a budget for yourself can help make financial decisions easier. When you see what money you are bringing in and spending, it will help you to identify areas where you can, or need to, cut back. A popular budgeting method that you can start with is the 50-30-20 rule. This savings method recommends that you put 50% of your income towards your needs, 30% towards your wants, and 20% towards your savings. Then, when you transfer funds between your savings and checking accounts in your mobile banking app or set up your payment plan with your employer, you can have more direction of where your money should go. (Need Help Budgeting? Use our budgeting calculator!)
Prioritize Paying Debts
From student loans to credit card debt, it can feel all-consuming. Eliminate stress by choosing a debt payoff plan and laying out your debts, interest rates, and balances. Prioritizing high-interest debts like credit cards is important, as they can grow quickly over time, making them harder to pay off. So, consider using a debit card or a credit card with a 0% introductory APR to save on interest and avoid going into more debt.
Have An Emergency Fund
Unexpected costs always seem to come up at the most inconvenient times. Thank yourself later, and start allocating money towards an emergency fund when you have some extra cash. Many people increase their debt when an emergency arises as they often rely on credit cards and, in turn, are forced to climb the uphill battle of tackling interest on top of it. Start small by setting aside $10 to $20 a paycheck in a separate savings account until you have $500 to $1,000 saved up; this can help tackle smaller emergencies like car repairs. Then, you can set a long-term goal for yourself of having 3-6 months' worth of savings for bigger emergencies.
Save for Retirement Early
Saving for retirement doesn’t feel like a priority when you’re just starting on your own and scrapping by with every penny. However, even small contributions now can make a massive difference in the long run, thanks to the power of compound interest. Compound interest means you earn interest not just on the money you save but also on the interest that money generates. A savings calculator can help you see the power of compound interest quickly and how the slightest increase in your deposit can affect your return.
Here’s a quick example:
- Start Saving at 20: If you save $100 per month at a 7% annual interest rate (compounded monthly) until age 65, you’ll accumulate approximately $393,793.
- Start Saving at 25: If you save $100 per month starting at age 25, you'll accumulate about $272,540 by age 65.
By starting just 5 years earlier, you'll have over $121,000 more in retirement savings, even though you only contributed $6,000 more ($100/month for 5 years).
Another way you can start saving early is through a 401k plan through your employer. A 401k plan allows you to invest part of your paycheck to be invested in a retirement savings account. Most employers will match a percentage of your contributions which is a huge benefit to capitalize on. There are two common types of 401k plans: a traditional 401(k) and a Roth 401(k) plan. Each has its advantages, so it’s important to do your research or consult with an advisor about which option is right for you. One tool that can help you get started is our retirement calculator.
Although it can feel overwhelming as you’re starting on your financial journey, it’s important to remember that a little bit can go a long way. Building good habits might feel challenging at first, but once you establish a routine, you'll see your efforts pay off as your wealth grows over time. The key is consistency and patience—your future self will thank you for starting today.