When Should You Start Saving Money?


Although there are many opportunities to save, most people put saving money aside because they feel they can do it at any time. However, financial advisers recommend saving money as early as you can. So, given that premise, when should you start saving money?

To answer the question, financial planners say that the right age to start saving is any age. Begin saving for the future when you start earning money for yourself. It could mean putting aside something when you get paid for chores or selling cookies or lemonade during summer. Saving money is an excellent habit you should develop at an early age.  

First steps

Saving money becomes easier when you have a goal or motivation. If you already started working, consider your financial situation and motivations. You set a goal, short-term or long-term. For a short-term goal, you usually want to save for something you want to acquire within six to twelve months. A long-term savings goal typically takes five years or more, depending on what you are saving for, such as a house or your retirement fund. 

Whether saving for a short-term or long-term goal, you should start now. An example of a short-term savings goal is an emergency fund. Bankrate says an emergency fund should equal three to six months of household bills. On the other hand, if you’re saving for your retirement fund while still in your 20s, the best way is to start after leaving school. Keep your retirement savings fund in a high-yield savings account, and ensure that you compare account features, savings rates, and annual percentage yield.

Your discretionary fund

When you decide to start saving, you must first consider your discretionary or disposable income. This income is the money you have left after paying living expenses, utility bills, taxes, loans, and leases or mortgages. If your discretionary income is quite small, the more you should start saving as soon as possible. But you should not spend most of your discretionary income if it is bigger. In fact, it should be your motivation to start saving aggressively. 

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How much money do you need?

Next, you should consider the amount you need to reach your savings goals. For example, if you’re planning to purchase a home or car, you need ten to twenty percent as a down payment based on the purchase price. 

For a college fund for one or more children, your target amount is the estimated tuition when a child reaches college age, taking into account the inflation rates to get a proper estimate. If you are saving for retirement, you must identify the target replacement income (TRI). The target replacement income is the percentage of your current income you will need when you are no longer working. For example, if your TRI is 80 percent, you should save 24 percent of your annual income today. 

Where to keep your money

Your options should be the institutions where your savings can earn more. You can have a traditional savings account for your short-term goal, such as a vacation or buying a car. For a non-retirement goal that will take around five years or more, opt for a savings bond, which is safer and gives a better rate than a regular savings account with a bank. For a retirement fund, consider mutual funds, 401ks, Roth IRAs, or other profit-sharing schemes offered by your employer. 

The pandemic surprised many people, as they do not have enough savings or emergency funds. Based on lessons learned, more people are now aware of the importance of savings and started to develop the habit of putting aside an amount every month. However, it is better to follow a more systematic method to save and to start planning your financial future while you are still young and earning more. 

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