Pay Yourself First: Practical Advice for Young Adults

It’s not a secret that most high schools and colleges in the United States don’t require personal finance courses to graduate. In fact, a 2020 survey of the states by the Council for Economic Education highlighted that 26 states do not require a high school personal finance course to graduate. That being said, many young adults are entering the workforce clueless about managing their money and saving for the future. According to a CareerBuilder survey, a startling 78% of U.S. workers were living paycheck to paycheck in 2017.                                                                                   Let’s discuss a few practical ways to take advantage of your youth to save and invest in your financial future.

The Real Issue

While amid the daily grind of earning a living, we frequently imagine life after retirement as a happy, stress-free, and relaxing time. On the contrary, many retirement-aged Americans today feel unfulfilled and restless because they’ve found themselves without a proper financial plan for living after retirement. Focusing on the financial aspects of retirement is critical, as it will ultimately influence your quality of life and how you use your retirement assets.

Bottom line, you don’t want to run out of money before you run out of time.

Take Full Advantage of Your 401(k)

Participating in a 401(k) plan through your employer is usually the easiest way to get started putting money away for the long term. Since the funds are deducted from your paycheck, one of the advantages of 401(k)s is that they are beneficial to anyone who struggles with self-discipline.

Many companies contribute to 401(k) plans on behalf of their employees regardless of whether they contribute to the plan. Other companies contribute to the 401(k) plan only if the employee also provides funds to the plan. The exact amount of a 401(k) match will vary by employer, but it is typically a dollar-to-dollar match to the employee’s contributions.

Setting up automatic payroll withholding is the best way to take advantage of a 401(k) match. If your employer will match up to 6% of your salary, make sure to contribute at least 6% of your pay to the 401(k) plan. As your salary increases, so will the dollar amount of your withholding and employer contributions.

The benefit of saving and investing when you are in your 20s and 30s is not only that you will have money for retirement. You can also afford to take more risks and get a bigger return since your time for saving is long.

Talk to a financial adviser

Financial planners help you arrange and plan your finances. They use your current income, savings, and investments to project what you will have when you’re ready to retire.

What Is Financial Planning?        Financial planning is the process of defining your financial goals.This could include knowing when you will need to use your money and how you will use it.

You set some goals, with milestones along the way to reach those goals. Then, you lay out the plan of action needed to achieve those milestones and goals. One area in which financial planners excel is retirement planning. However, to make the most of their advice, you must consult with a planner well in advance of your anticipated retirement date. They can advise you on how to start saving for retirement and how to make the most of your employer’s benefits package.

Implement the ‘10% Savings Rule.’

The 10% savings rule is a guideline that suggests saving 10% of your gross income for retirement or unexpected expenses. It provides a starting point if you don’t know how much to save, but it isn’t a one-size-fits-all rule.

Setting up a personal budget that saves 10% of your gross income each paycheck is a good way to prioritize savings.

A retirement account is one option for putting your saved money, but it is not the only one. The money you set aside under the 10% rule can also be used to start an emergency fund, save for a down payment on a house, and so on. It is quite simple to understand how it works. Take your gross earnings (the amount before taxes or other deductions) and multiply it by 0.10. (This is equivalent to dividing by ten.) If you began following the 10% savings rule at the age of 25 with a salary of $6950 approximately and invested that fraction every month in a retirement account earning 5% interest (investing $694), you would have contributed $144,000 approximately by the age of 65. 

Final Thoughts

Saving is frequently a matter of self-discipline. Setting money aside for the future rather than spending it now necessitates self-control. The earlier you begin saving, the greater the impact of compound interest. Paying yourself first is a way to ensure a comfortable retirement!

Donate to provide resources and scholarships for K-12 in low-income communities. Your money will support opportunities for students to exceed and excel in STEM-based projects and programs throughout the United States.