Here are key examples:
- Save for specific goals.
You should have a savings plan for large future expenses that you anticipate — perhaps education costs, a home or car purchase, starting a small business, or preparing for retirement (even though that may be many years away). And, young adults just starting to be responsible for their own expenses should build up an emergency fund that would cover at least six months of living expenses to help get through a difficult time, such as a job loss, major car repairs, or unexpected medical expenses not covered by insurance.
- Commit to saving money regularly.
This is important for everyone, but especially if you are supporting yourself financially.
- Aim to save a minimum of 10% of any money you earn or receive.
Putting aside a designated amount is known as “paying yourself first,” because you are saving before you’re tempted to spend.
- Put your savings on auto-pilot.
Make saving money quick and easy by having your employer direct-deposit part of your paycheck into a federally insured savings account. Your employer or your financial institution may be able to set this up for you. If you don’t yet have a steady job, you can still set up regular transfers into a savings account.
- Make use of tax-advantaged retirement accounts and matching funds.
Look into all your retirement savings options at work, which may come with matching contributions from your employer. Chances are your retirement savings will hardly reduce your take-home pay because of what you’ll save in income taxes, and the sooner you start in your career, the more you can take advantage of compound growth.
If you’ve contributed the maximum at work or if your employer doesn’t have a retirement savings program, consider establishing your own IRA (Individual Retirement Account) with a credit union or investment firm and make regular transfers into it. Remember that you can set up an automatic transfer from a checking/share draft account into a savings/investment account for retirement or any purpose.
- Decide where to keep the money intended for certain purposes.
- Consider keeping emergency savings in a separate federally insured savings account instead of a checking/share draft account so that you can better resist the urge to raid the funds for everyday expenses. Be sure to develop a plan to replenish any withdrawals from your emergency fund.
- For large purchases you hope to make years from now, consider share certificates and U.S. Savings Bonds, which generally earn more in interest than a basic savings account because you agree to keep the funds untouched for a minimum period of time.
- For other long-term savings, including retirement savings, young adults may want to consider supplementing their insured deposits with low-fee, diversified mutual funds (a professionally managed mix of stocks, bonds and so on) or similar investments that are not deposits and are not insured against loss by the NCUA or FDIC. With non-deposit investments, you assume the risk of loss for the opportunity to have a higher rate of return over many years.
- For future college expenses, look into 529 plans, which provide an easy way to save for college expenses and may offer tax benefits.
- For healthcare, find out whether you are eligible for a health savings account (HSA), a tax-advantaged way for people enrolled in high-deductible health insurance plans to save for medical expenses.
More broadly, look at your monthly expenses for everything from food to phones and think about ways to save.