The Twenty-Something Guide to Saving

Sat, Oct 6, 2012

Financial Advice

When you are in school, you learn the skills you will need to take with you to find your first job.  While some schools do offer classes on how to save, only finance students really take anything away from these classes that they will use in real life.  Once you get your first job, you need to make sure that you have a plan for saving for the future.  If you save in your twenties, you have 10 to 20 more years to build your nest egg than those who wait until middle age to start saving.  Here are some tips on how to invest for your retirement while you are young so that you can live comfortably when you are wise.

Establish Your 401k 

A 401k is an employer-sponsored retirements savings plan that is offered to an employee as a benefit.  If you receive this benefit, one of the smartest things to do is to participate in the program from the start.  The sooner you participate in the program, the longer you have to watch your money grow.  Even if you choose to contribute just 3 percent of your income, it is a start that will make a large difference later on down the line.

While some employers will allow you contribute to a 401k immediately, others will make you wait a year.  Contributing is like paying yourself.  Make sure you contribute the maximum amount, if at all possible, and take advantage of any matching that your employer offers.  Currently, you can contribute up to $15,500 each year in your account.  Most employers will match between $3000 and $5000 per year.  While you cannot make the maximum contribution in the beginning, you may be able to increase contributions as your salary goes up.

Do Not Touch Your Retirement Savings 

The money you contribute in a 401k is not taxed until you pull money out.  If you pull your money out early, you are not only taking away from your life in retirement, you are also putting yourself in a position where you are going to pay high penalties to the IRS.  The rule of thumb states that you should never touch your retirement savings unless you are investing in something that is sure-fire.  Since a home can lose its value and the stock market is known to fluctuate up and down, taking money out of your retirement account for these investment opportunities is not a good idea.  Let the money stay where it will grow, and do not rob your retirement by borrowing against it.

Take Advantage of Flex Spending 

Another employer benefit that will help you save as you age is Flexible Spending.  If you are offered a Flexible Spending Account, you can save money on your medical expenses and medications by paying for the services and products with pre-taxed money.  By contributing to an FSA, you can reduce your taxable income and reduce the amount of money you pay out-of-pocket for medical expenses.  A portion of each of your checks will go to FSA.  This pre-tax money is then available to you when you are paying for co-pays, medications, or expenses that are not covered by your insurance.

You have to consider how to save long-term when you are young.  It is also a good idea to review the benefits of opening an Individual Retirement Account while you are young.  With an IRA, you can supplement the savings you have in your 401k and rollover your 401k into the IRA if you ever change jobs.  Make sure you start young and you will not even miss the money that is going into your savings.

Jerry Clemens is a financial writer who has had years of experience in the financial field. He understands the importance of good financial habits in your early twenties, and beginning a good career. He knows how bad decisions such as drinking and driving when young can seriously affect your ability to get a good job and begin saving for retirement. It is important to seek help at Walnut Creek when faced with these accusations to ensure a good financial future.

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