It’s never easy to save, especially on an entry-level salary. But following these guidelines will make it a whole lot easier.
Let’s be honest: it’s hard to save on an entry-level salary. It’s even harder to save when you have student loan payments every month.
In the back of your mind, you know you need to be saving (and probably more than you are now), but how do you save? And how much?
Here are a few tips for saving now so you don’t have to worry about money later:
The good news is that you don’t have to be a financial genius to learn how to save. The even better news is that if you automate your savings, you only have to worry about all of this stuff once.
Most saving plans will likely fail you, because they require you to budget, and let’s be real here—very few of us are good at budgeting. But if you set up your bank account to automatically transfer money to savings right after you get paid, you don’t have to worry about spending your savings, because you’ll never see that money in your checking account.
Automated savings is basically a way to trick yourself into not spending your money, because the bottom line is you probably won’t save when left to your own devices. Only 41 percent of Americans save regularly, which is a pretty scary number, especially considering the state of our economy. If you don’t want to fall into this category, make it easy on yourself and automate.
How Much Should You Save?
Now that you’re definitely going to automate your savings (right?), how much should you save?
Let’s start with the biggest money suck: retirement. Think of retirement as one of the longest jobs you’ll ever hold, and you’re in charge of how much you get paid. Don’t fool yourself into thinking retirement is too far off to save for—save for retirement as early as possible!
It takes a lot of money to retire, and there are plenty of retirement calculators that can help you figure out how much you will need to retire, but a good rule of thumb is to save 10 percent of your income.
If you can’t afford to put 10 percent of your paycheck away, then start with what you can save. You can always work your way up to 10 percent.
Once you decide on your monthly goal for retirement savings, automate it! Make sure you pay yourself first by automatically putting your savings away as soon as you get your paycheck, because after all, you are essentially your own employee during retirement.
What Should You Save For?
It’s important to have three basic types of savings:
1. $1,000 emergency fund
2. Three to six months of expenses fund (also for emergencies)
3. Retirement account
1. $1,000 Emergency Fund
A $1,000 emergency fund is the first savings account you should open. This money is the “peace of mind” factor, because it gives you a financial cushion if you run into emergency (like your car breaking down). It will hold you over if anything happens to go wrong, and since it’s a smaller amount, you can quickly save that much.
This emergency fund should go into a regular savings account at your bank, preferably one with debit card access, because—let’s face it—most emergencies happen when the bank is closed.
2. Three to Six Months of Expenses
A three to six months of expenses fund is a larger safety net than the emergency account. Start saving for this fund as soon as you have established your $1,000 emergency fund.
This money should only be used if you lose your job. After all, in 2011 the average job search took about 10 weeks, and for young professionals, the search is often even longer.
Having a large nest egg you can use if you’re down on your luck could mean the difference between maintaining your independence and moving back in with your parents.
The third type of savings, retirement, we’ve already covered in part, but there’s more you need to know.
If your employer offers any sort of retirement matching, take full advantage of that, because it can GREATLY affect your financial security.
If your employer doesn’t offer a retirement account option, don’t let that slow you down—there are plenty of online banks that allow you to set up an IRA or IRA Roth account.
For all three saving funds, automate your monthly “payments” so you ensure you’re saving regularly and consistently. Get a calendar and set visual deadlines for yourself so you can see your progress.
Saving Is Possible While You’re Young (And Even If You Have Student Loan Debt)
Yes, saving is hard. It’s even harder if you’re making payments on your student loans, and it means you’ll have to likely cut back on some indulgences while you’re earning an entry-level salary. But by automating your loan payments and savings, you’re committing to a financial plan—one that doesn’t require monthly budgeting or extensive planning, which is sure to help you succeed.
When you have to tighten your belt a bit, just remember that retirement is one of the longest jobs you’ll ever hold, and you’ll want to be paid well for that.
Kyra Kuik works for a creative internet marketing company in Seattle, WA. You can connect with Kyra on Twitter.