Smart Money Moves for Members Under 30
Life in your twenties can be exciting and full of new opportunities. There are many milestones young members might cross off their lists during this period: graduating college, beginning their careers, getting married, and even starting families.
While long-term financial goals might seem a lifetime away, the decisions you make today can significantly impact your future fiscal success. When it comes to building wealth, time is your best friend. The sooner you begin laying the foundation for the future, the better your position will be when you approach your next financial milestone.
Here are several wise money moves you can make in your twenties to prepare yourself for financial events yet to come.
Track Your Expenses
Knowing where your money goes and identifying your spending habits are two crucial skills to master early. The best way to build your savings is to create a budget and regularly monitor your expenses. You can download many free apps to track your spending or review your monthly account statements to get a better picture of your fiscal habits.
As you age, your financial obligations will increase and become more complex. Having a family, for example, will increase your expenses in both the short-term (childcare, food, housing) and long-term (college savings). Knowing how to track and manage your spending will help alleviate stress and prepare you for any unexpected expenses.
Digital banking at CAMPUS offers a Personal Financial Management Tool to help you track your expenses and work towards your goals.
Open a Roth IRA
While retirement may seem a lifetime away, your investments today could significantly impact your golden years. Whether your employer offers a retirement plan or not, you should consider a Roth IRA. This type of investment differs from the more commonly known Traditional IRA.
With a Traditional IRA, you can invest pre-tax dollars into the account now. Upon reaching 59 ½ years of age, the money withdrawn will be taxed according to the rates at that time. This type of IRA allows you to save on taxes now versus during retirement.
A Roth IRA operates the opposite. You invest after-tax money now, and your withdrawals during retirement will be tax-free. Two reasons young investors should consider a Roth IRA are:
- When beginning your career, your pay will likely be lower than later in life. Investing in a Roth IRA allows you to pay fewer taxes now and have tax-free retirement withdrawals.
- Tax rates today are relatively low. With increasing government debt, taxes will likely increase in the future. Paying lower taxes today saves you from paying higher taxes in retirement.
Save 15% of Your Income
You should aim to save between 10% to 15% of your take-home pay. While this may seem challenging initially, it’s much easier to get into this habit when you’re just starting out. If necessary, work your way up to 15% over time. For example, create a budget that allows you to save 5% of your monthly income now. Once this becomes routine, revisit your budget and work towards 10%, and so on.
Automate Your Savings
One of the best ways to regularly grow your savings is to “set it and forget it.” With Payroll Deduction or Automatic Transfers, you can put your savings on autopilot. After a while, you may not even notice the money coming out of your paycheck anymore – but you’ll definitely notice your savings balance growing!
Open a Health Savings Account (HSA)
A Health Savings Account (HSA) allows you to save money in an account specifically for future medical expenses. As a young adult, you’re likely very healthy. So while you might not need this money now, you (or your future family) will eventually have medical expenses. The reason this type of account is popular among savers is the triple tax benefit* it provides:
- Contributions made to your HSA are not subject to federal income taxes.
- Earnings realized on funds within your HSA are tax-free, allowing your funds to grow unburdened by taxes.
- Withdrawals are also tax-free if they are for eligible (medical) expenses.
Build an Emergency Fund
Life is full of financial curveballs – from the unexpected car repair to the impromptu visit to the ER. Putting money aside for unplanned expenses will provide peace of mind and prevent you from seeking costly solutions, such as high-interest credit cards or payday loans.
When beginning to build your emergency fund, start with small deposits. Get into the habit of putting money aside regularly. As your balance grows, increase your savings rate. You should aim to set aside between three to six months of living expenses in your emergency fund. This might seem like a lot, but if you were to face a sudden job loss, it could hold you over until you find a new job.
Focus on Career Advancement
When starting your career, always look for opportunities to grow. If your current position does not offer opportunities to advance long-term, search for jobs where you can grow and expand your financial opportunities. It’s easier to make these moves when you’re young and don’t have the responsibility of a family.
Also, use this time to invest in certifications or educational opportunities to boost your value to potential employers. The more credentials you have under your belt, the more sought after you’ll be, resulting in higher pay and job security.
CAMPUS Can Help!
While you may be unsure of what your future holds, taking extra steps now to ensure the security of your finances is the best financial move you can make. The earlier you start managing and saving money, the better off you’ll be later in life.
If you are interested in opening an emergency fund account, automating your savings, or would like to learn more about IRAs, we can help. Please stop by any of our convenient service center locations, call 800-367-6440, or open an account online today.
Other Resources:
On-Demand Webinar: Budgeting Basics
Emergency Fund: How much you should save and why
By Campus USA at 26 Jul 2022, 11:39 AM