Saving doesn’t come naturally to most of us. When you’re young, it’s hard to grasp the real value of money. You might watch your friends blow lots of cash on new clothes and toys, or living beyond their means with credit. Young Invincibles might feel little reason to save, because all of their needs are met, and there’s so much more life yet to come.
Once you’ve spent two or three decades on earth, you start to understand how hard it is to make money. You also learn how unpredictable life can be. Jobs disappear. Health fluctuates. Marriages and partnerships come to an end. Without savings, it’s hard to live a stable life as you get older. People who start saving young put themselves at an enormous advantage as life goes on.
If you’re young and debt-free, congratulations. Here are a few ways to make the most it, through saving and early investment.
This is How People Save Money
- Save Before You Spend. Whenever you get money from any source, put some of it into savings before you spend on anything else. A 15% savings rate is a good goal for most people, but young people can sometimes save far more. If you live with your parents, or otherwise have your needs met by other people, save as much of your disposable income as possible. Saving and investment started early in life will reap much greater rewards than those begun decades later.
- Work Out a Deal With Your Parents. This won’t be possible for everyone, but take advantage of this if it’s possible for you! Some parents/grandparents/guardians will match your savings. That means if you are able to save $25 from your weekly paycheck, your parents might be willing to give you $25 more. Some parents are more than willing to give their children money for the future, especially if it is put in an account which is not accessible until later in life.
- Consider Opportunity Costs for All Purchases. One of the most important aspects of investment is compound growth. Through the power of interest, dividends, and reinvestment, conservatively invested savings can double or triple in 10 years, sometimes multiplying by 10x in 30 years. Obviously, the earlier in life you start investing, the longer you’ll have to let it grow. Every time you spend money as a young person, you are depriving yourself of wealth later in life. Think about that the next time you buy a $50 video game. Is it worth missing out on $150 in 10 years, or $500 in 30 years?
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More Tips for Big Savings
- Don’t Carry Around Lots of Cash. It’s too easy to spend impulsively when you’ve got lots of money in your pocket.
- Get a Savings Account With a Good Interest Rate. Reserve a certain percentage of each paycheck, and the interest rate will make it grow little by little. When you’ve saved enough to help you through the next several years, start investing everything else.
- Don’t Buy What You Don’t Need.
- Plan to Be a Millionaire. If you start investing 10 years before most people, you will have many hundreds of thousands of dollars more when it’s time to retire. Even if you simply max out your IRA every year starting at age 18, you’ll almost surely be a millionaire when you retire.
- Save Your Change. Put your spare change in a jar. Roll those coins up and deposit them in the bank.
- Budget! Have set spending rules for every dollar you make.
- Start Working Young. The sooner you can have your own income, the sooner you can set yourself on a course for lifelong wealth and security. Teenagers and students have many opportunities to make money.
The trick to saving your money is to begin now. The money you save at a young age adds up quickly. Through this process, you will learn the importance of saving and being financially responsible, something that most adults fail to understand. With good financial skills and lots of hard-earned wealth, you’ll have a lot better life options as you enter adulthood than most people can dream of. Good luck!