I’m a Retirement Planning Expert: 3 Best Money-Saving Strategies To Start Young
There’s no better time to start saving than when you’re young.
The more years you allow your money to grow, the more time you give interest-on-interest compounding to transform small, consistent contributions into big, hulking retirement accounts. But it’s also important to get an early jump because if you start when you’re young, it’s more likely that saving money will become a lifelong habit.
But many recently minted adults aren’t getting the message.
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A recent Fidelity study found that 55% of young adults aren’t saving money at all, and an Inuit study revealed a growing trend among Gen Z called “soft saving,” which is saving in name only. Instead of banking their money, more and more young adults are spending it on mental wellness and personal growth to feel good in the here and now instead of securing their financial futures for tomorrow.
Mental wellness is important, but so is saving for a rainy day. Here’s how one financial professional said young people can break the trend and put money in the bank while they work on themselves.
Learn as Much as You Can About Money
The concept of saving is relatively simple — spend less money than you earn and put the difference in the bank. But the banking industry and the financial world, in general, are complex and sophisticated. It’s up to young people to learn as much as they can about how it all works.
“I stress the importance of financial education,” said Marty Burbank, an estate planning and elder law attorney and the founder of OC Elder Law in Orange County, California, where he sits on several prominent boards and has been recognized for his work helping veterans and retirees plan for their financial futures.
“Understand the basics of investing, the power of compounding interest, and how lifestyle inflation can detract from long-term savings goals.”
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Stick With the Teachers Who Know What They’re Talking About
Personal finance, in general, will feel less intimidating and overwhelming as you learn more about the inner workings of money and the institutions that control it — and you’re more likely to participate in a system you understand. Your financial institution is a good place to turn for educational primers, as are reputable websites. You might also pick a few credible social media influencers and tune into their videos and podcasts, but learn about the red flags for spotting phonies — promises that are too good to be true, trying to sell you stuff, talking in extremes and absolutes, etc. — because the internet has no shortage of fake finfluencers.
Put a 401(k) Above Even Salary When Looking For Work
If you’re just starting out in the workforce, you probably won’t land your dream job or command an enviable salary right away. That can come later — but what you won’t get mid-career is a second chance to put compounding to work early by stashing cash in a 401(k) while you still have the benefit of years. When hunting for entry-level jobs, treat the absence of a retirement plan as a dealbreaker.
“For young people starting to save for retirement, my advice is to take advantage of employer-sponsored retirement plans, particularly if there’s a match contribution involved,” Burbank said. “This essentially means free money toward your retirement fund.”
Young Workers Are Catching On — It Pays To Save Early and Often
In 2015, the Society for Human Resource Management conducted a study that found 1 in 4 workers were missing out on company matches to their 401(k) plans, leaving an average of $1,300 on the table per year. That’s closer to $1,700 in 2024 money, but thanks to compounding, it could lead to the loss of six or even seven figures over the course of your working life.
The study found that young adults were much more likely to miss out, with employees under 30 nearly twice as likely to pass up the free money of matching employer contributions. However, nearly a decade later in 2023, Bank of America data showed that Gen Zers and young millennials had not only caught up but were outpacing older workers in 401(k) contributions, which Fortune attributed to anxiety about their future financial security.
It appears as if many young people are already following Burbank’s best saving advice — pursue early jobs that come with retirement benefits and contribute no less than what maxes out your employer’s match.
Be Consistent Through Automation
Whether it’s your savings account, brokerage account, your company’s 401(k) or any other place you save and grow your money, consistent contributions are more important than big contributions. To make sure you pay yourself with every check you get, do what you do with Netflix and your favorite fitness app — schedule the money to come out of your account automatically every month without you having to do anything or even think about it.
“Setting up an automatic savings plan that directs a portion of each paycheck directly into a retirement account can make saving seamless and prioritize it as a non-negotiable part of your budget,” Burbank said.
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This article originally appeared on GOBankingRates.com: I’m a Retirement Planning Expert: 3 Best Money-Saving Strategies To Start Young
