How to Start Saving: Financial Advice for New Graduates and Young Professionals
Saving is a journey that begins with simple steps and builds toward financial independence — and it helps to have a guide along the way.
As CERTIFIED FINANCIAL PLANNERS™, our recommendations vary greatly depending on who we are assisting. This road map has been carefully crafted for clients looking to make sound financial decisions as they advance in their careers and in life. These saving areas are meant to be flexible and can be customized to your unique financial situation.
Get Into the Savings Habit
When clients ask how much to save from a paycheck, we say the answer depends on their individual situation. The key is consistency, so save some money from every paycheck, even if it is a small amount. Over time, those savings can help you manage unexpected expenses and prepare for future opportunities.
If you are starting small, increase the amount you save every month until you can save up to 20% of what you earn. If that does not seem possible, use expense tracking and budgeting tools available from your bank to see where your money goes, so you can save more.
Create an Emergency Fund
Once you are in the habit of saving, what do you do with that money? Most financial planners recommend building an emergency fund. Having three to six months of living expenses set aside in a separate savings account can prevent short-term challenges from turning into long-term debt. This is often one of the best saving strategies for young adults who are just beginning to manage their own finances.
Even having a few hundred dollars in a savings account can help you if you suddenly face an unexpected car repair bill or other surprise expense. Once you have used some money from your emergency fund, keep saving on a monthly basis until you replenish the amount. Most savings accounts allow you to set up automated deposits so you can seamlessly contribute to your emergency fund on the same day every month.
Take Advantage of Employer Benefits for Retirement
If your employer offers a 401(k) or 403(b), contributing enough to receive the full employer match allows you to save more for retirement. Some plans offer both traditional and Roth options. A Roth employer-sponsored retirement account allows after-tax contributions to grow tax-free, which may be appealing for younger professionals in lower tax brackets.
While retirement may seem like a long time away, investing now allows you to retire with more because your money will have more time to grow.
Contribute to an IRA
A Traditional or Roth Individual Retirement Account (IRA) is not sponsored by your employer. These plans are ideal for individuals who may not qualify to enroll in an employer-sponsored 401(k) or 403(b), such as part-time employees, seasonal workers, freelancers, or independent contractors. At the same time, an IRA can be used to supplement any retirement plan you do have through your employer as a way to save even more.
With an IRA, you can contribute a maximum of $6,000 per year. You do not get a tax deduction when you contribute to a Roth, but all the growth on what you contribute is tax-free forever.
Consider Health Savings Accounts
A Health Savings Account (HSA) offers tax advantages when paired with a high-deductible health plan. The funds can be used for qualified medical expenses now or saved for health care costs in the future. Once you have established an emergency fund and started saving toward your retirement, looking into an HSA may be a smart next step depending on your annual health expenses.
Take the Next Step With HSC Wealth Advisors
As a Fee-Only Registered Investment Advisor (RIA) firm, HSC Wealth Advisors is compensated solely by our clients. We do not earn commissions or incentives from any investment company. If you’re wondering whether HSC Wealth Advisors can help you grow your savings, contact us to find out more about our services.