If you are young and want to start saving money, you might have questions about how to do this and where to begin. While you can try to figure this out alone, it might be helpful to seek advice from a financial planner. Financial planners can offer a wealth of advice and assistance to people who need it, and they may suggest using the following three principles.
Have an Emergency Fund
One of the best things you can do when saving money is to set up an emergency fund. The purpose of an emergency fund is to have an account with money in it that you can use for unexpected expenses. For example, when an appliance breaks or your car stops working, you may suddenly encounter a hefty repair bill. Instead of paying the bill with a credit card, you can use the money in your emergency fund. You can place as much money in the account as you want, but you should try to have at least four to five months of income in it.
Aim to Save 20% of Your Income
The next vital principle to follow is to save 20% of your income. If you can spend only 80% of your income on your bills and other purchases, you can use 20% for your savings. If you are not saving any money right now, saving 20% might seem like too much. The good news is that you can start small and work your way up. If you can only save 2% right now, save this amount. Over time, you can gradually save more money until you are up to 20% of your income.
Cut Your Expenses to Save More
The other vital principle to live by is to spend less than you earn. Living within your means is the most crucial principle to follow when trying to save money. In fact, if you are cautious with your income, you can find ways to cut your expenses to free up more cash. Cutting your expenses might mean giving up some things right now. If you do this, you will thank yourself later on when you have a large retirement account waiting for you.
Following these tips can help you start saving for retirement. If you need help finding ways to save, contact a financial planner. A planner can help you determine what investments to use and can help you create a plan. Contact a financial planning service for more information.