Key Takeaways
Save first and then live off what’s left. Avoid food delivery services, eat out sparingly and cancel subscriptions and memberships you’re not using.
Take full advantage of the employer match in your company retirement plan—it’s free money.
Shop around for the best interest rates on saving accounts. Eliminate high interest credits cards and other “bad” debt as aggressively as you can.
Stay fully invested in all market climates and never take money out of your portfolio. Got a raise? Increase saving rather than your lifestyle.
As a member of the Millennial generation, I can tell you firsthand that many of my peers feel like we’re behind the 8-ball when it comes to starting a family, buying a home and accumulating wealth. Social media isn’t helping either. We’re on Instagram, Twitter and Tik Tok all the time. It’s impossible NOT to feel despondent about your finances when you see nothing but (supposedly) successful people our age living fabulous lives with exotic vacations, beautiful homes and cars, and going out every night to amazing events.
On the bright side, more and more young couples are coming to us for planning advice today instead of waiting until they’re approaching retirement age. They’ve reached a point in life in which they’re combining finances and have larger, more complex savings goals such as funding a 529 plan, financing a life insurance policy, saving for a house down payment, and of course preparing for childcare expenses. Below are some simple, but powerful ways to work toward your goals without feeling overwhelmed.
9 Simple, But Powerful Strategies For Saving Money To Reach Your Financial Goals
1. Take advantage of employer match for retirement plans. Make sure to contribute a percentage of your paycheck that gets you the full company match from your employer. A good starting point is saving 5% to 10% of every paycheck in your company 401(k) or other retirement plan. If you get a raise, keep making that same percentage contribution of each paycheck to your company retirement plan rather than increasing your lifestyle.
2. Avoid taking out large chunks of money from your portfolio early on. When you’re in young adulthood, your money has time to double many times over before reaching retirement age, if you stay fully invested. But if you take your money out early in life you lose out on the power of compounding – even if it seems like a sensible withdrawal. For instance, one of our 30-something clients lost her father recently and she inherited a large amount of after-tax money. She asked us if it made sense to use the inheritance to pay off her mortgage. At her age, using $200,000 of inheritance to pay off her mortgage might seem like a good move since it would save her about $145,000 in interest payments over the next several decades. But if she kept that money invested over the next 30 years, that $200,000 could reasonably grow to $1.5 million, assuming a reasonable 7% compound annual growth rate. And by not paying off the mortgage, she could continue to deduct the mortgage interest payments from her taxable income. 3. Eliminate “bad debt.” Generally, you want to pay down any loans or financing – credit cards, auto loans, home equity loans, etc. – that are costing you more than 4% interest, since interest adds up in a hurry. As a start, couples should be honest with each other about how many credit cards they own and how much they’re spending on them each month. After coming to see us, one young wife was shocked to learn that her husband had racked up nearly $40,000 in debt on one of his personal credit cards. We helped them put a plan in place to pay off that debt aggressively before they started applying for mortgages.
4. Save first and living off what’s left vs. saving whatever is left at the end of the month. When your paycheck comes in, the first thing to do is take a fixed percentage out of your take-home pay and put it directly into a savings account so it can keep compounding and growing. We suggest a fixed percentage over a fixed dollar amount so that what you save per month will naturally increase in correlation with increases in your income.
Next, pay all the household bills (and credit cards) off in full. If anything is left, you can use that to splurge. Compare that to seeing what’s left of your paycheck after spending it on fun and the bills -- and seeing if there’s anything left to put into saving.
5. Staying invested through the bad market times. Study after study shows that investors who stay the course through good times and bad substantially outperform investors who try to time the best times to get in and out of the markets. As the chart below shows, being out of the market for just a few key days can significantly lower your returns. Even better, younger investors have plenty of time for their portfolios to recover from a down year in the markets.
6. Limit use of food delivery services such as Door Dash, Grub Hub, UberEATS -- and dining out in general. It’s fine to splurge once in a while, but fees and tips for delivery services can really “eat” into your budget and prevent you from deploying that money into wealth-building areas such as saving accounts or investments. Same goes for dining out too frequently.
7. Maximize savings account interest. Shop around for the best savings opportunities. I personally use Ally bank due to its 4% interest rate on savings accounts and there’s no minimum balance. That’s where my fiancée and I have our house downpayment fund. MaxMyInterest is a website (and app) that allows you to compare bank savings rates nationwide.
8. Living below your means. I know this sounds obvious, but many smart young people with well-paying jobs are still paying way more than they should for housing. The rule of thumb is not to pay more than 28% of your monthly income on home mortgage and insurance or no more than 30% on rent. I know that’s not easy in our part of the country, but you may have to scale back your living situation in your early years to reach your long-term financial goals described above.
9. Cancel subscriptions you’re not using. If you haven’t been to the gym in months or watched a streaming service, read the online newspaper, or downloaded music from a steaming service in ages, just cancel them and don’t look back. The hundreds of dollars per month you’re saving can really add up and be better deployed to tips 1-8 above.
Conclusion We often speak about money with the teen and young adult children of our family office service clients. If you or a family member has concerns about your children’s (or your own) financial knowledge or decision-making, please reach out any time. We’re happy to assist.
BRENDEN LEESE, CFP® is an Associate Wealth Advisor at Novi Wealth Partners