START WITH YOUR MINDSET

If most of your future is ahead of you, you might think, “I’ll have plenty of time later to save.” The corollary thought is, “I’m not making enough now to save. I’ll start saving when I make more money.”

Think like this, and you will become a spender instead of a saver. If you put off saving now, you’ll keep putting it off. When you make more money, you will spend more money.

Decide early what you want to be—a spender or a saver. Savers get in the habit of saving money. If you try tracking your discretionary spending for a week, you might be surprised at what you spend. Envision what it might look like to set these dollars aside instead of spending them. Even when you’re not making a lot, you can always save a little knowing that even a small amount compounded over time can yield a fortune.

TAKE ADVANTAGE OF A HEAD START

Employers make it easier to save with attractive 401(k) plans. Contributions are tax deductible, accumulations are tax deferred, and in many plans the employer matches at least part of the contributions of the employee. For example, if your employer offers a 2% match, this means that when you contribute 2% of your salary, your employer will also contribute 2% for you, doubling your savings rate. This match is virtually free money. Take advantage of it!

Most employers also offer Roth 401(k) options. The big difference from a traditional 401(k) is when taxes are paid – and it matters a lot. For traditional 401(k)s, your regular contributions are made in pretax dollars, which reduces reported income. When you withdraw that money in retirement, it will be taxed as ordinary income. For a Roth 401(k), you pay taxes on funds now, but not when you withdraw funds at retirement. This means a saver who puts $6,000 into a ROTH 401(k) or Roth IRA is saving more for retirement than one who puts $6,000 into a traditional IRA. That’s because you’re taking the tax hit now and saving more tomorrow!

SAVE FOR A 911

Set aside an emergency fund for unforeseen and unexpected costly events. You know they’re going to happen, but you don’t know when, so it’s always good to have a cash account ready for expenses like a car repair or to keep your household afloat if you are out of work for a few months. Most advisors recommend saving three to six months of spending expenses. But even a one-month buffer is better than nothing. When you use your emergency fund, work to replenish it as quickly as possible.

INSURE EARLY

Insurance mitigates risk. Most of us get started with the essentials: car, homeowner’s, and health insurance. But guess what? When you’re young, it’s good to have life insurance, too. For one reason, it might save you money over a lifetime if you purchase life insurance young. While there are many contributing factors that determine life insurance premiums, when you’re younger, you’re generally healthier—and less of a risk. That means insurance premiums are considerably lower the younger you are at the time you apply for insurance. Term insurance – which lasts for a fixed period – is a good option. While it’s not fun to think about the reason for insurance, consider a plan that will pay enough to cover your burial expenses, remaining mortgage payments, and college for your children if you die.

TAKE CARE OF THE SMALL (AND BIG!) STUFF

“Estate” is a fancy word for your stuff. Estate planning is making sure everything you own is taken care of when you die. As much as possible you want what you leave behind to help take care of your loved ones. A good plan can make a big difference for them.

It’s good to understand the basics of an estate plan, and make sure you have them in place. A power of attorney for health care lets you appoint someone to make health care decisions for you since only once person can serve at a time. A power of attorney for your property does the same for your property and financial matters. IRAs and 401(k)s provide an option for beneficiaries who will receive the funds when you die. It is important to name beneficiaries and update those names regularly as your life changes (for example, you get married or divorced, have children, etc.) Lastly, wills and trusts provide direction on how your assets should be distributed when you die.

SAVE AND STILL DRINK YOUR LATTE

Creating a spending plan helps you focus on saving more each month. The essence of a spending plan is not cutting back on lattes. It’s how you plan for the big stuff that will have a bigger impact on your long-term financial success: how much you save and what you spend on fixed expenses, like your rent or mortgage payment.

A basic budget for broad categories helps you see where your money is going each month. Any dollar amount left over should be saved automatically.

Once the big items are taken care of, think of other ways you can save more. Negotiate for a raise. If you get it, keep your expenses the same, and save the balance. Cut your fixed expenses if possible. Review and consider your biggest spending items before you commit to them. If you’re not yet a homeowner, think about your monthly mortgage payment before you purchase. If you did purchase a home when rates were high, consider refinancing at a lower rate.

LIVE A GOAL-CENTERED LIFE

Don’t save just to save. Consider how saving will help you reach your life goals. Write the goals down, or better yet visualize them with a picture.

Think of 401(k)s and IRAs as financial vehicles to help you reach your goals. By the magic of compounded interest, they will get you to where you want to go if you get in the habit of contributing regularly to these funds.

The earlier you get started, the longer your money will have to grow! If you are under 50, you can contribute up to $19,500 to your 401(k) this year. Talk to your HR department about an increase if you can. Save additional funds in an investment account via automatic contributions for things you want to do with your life and with your loved ones.

Don’t restrict your goals only to retirement. Plan to live well before age begins to restrict your capacity to do so.