I may be the only one but one of my favorite perks of becoming an adult was the full-time paycheck. I worked under 30 hours a week in college doing childcare and only made around $300 a month when I nanny-ed my senior year. Then you add the small income to all of the sorority date dashes, weekend bar nights, and food craving kicks with your best friends and it makes it pretty much impossible to save.
Saving was something I was taught growing up. If I wanted to get an iPod, a game for my Nintendo game boy or the cute purse at target, I had to pay for it myself or wait for Christmas or my birthday. My dad had me open a savings account when I was 7 or 8 and over the next 10 years, my 20 dollar allowance continually went into the savings account.
Why Should I save?
Currently, in the United States, 1 in 5 Americans have nothing set aside if they have an unexpected payment (medical, car, etc). What is even worse, is that 1 in 3, don’t have at least $500. Sure, you can budget your money and pay back your debt. But what if something unexpected happens? Most families are living paycheck to paycheck, which is fine, but one small accident, health problem, or expense could push them into poverty.
Most millennials at this point, are not saving enough for retirement according to an article on Forbes.com. At the rate our age demographic is going, most of us will end up retiring into their 70’s! The reasons? Some really do make sense…for example, a lot of millennials are having to pay off a lot more debt from higher education. But what is even truer (frighteningly) is that a lot of us didn’t get the financial education we needed to prepare ourselves.
Senior year of high school, I had finished all of my credits but had to make it through another semester. So, I had my adviser set up my schedule with classes they thought would be interesting enough. One of those classes was an applied math class (applied as in, mostly students who aren’t at the honor or AP level/ tend to be kids who didn’t have college or higher education in their future). During that last semester of high school, I learned how to do my taxes (by hand), invest in stocks, pay back credit cards and learn what terms like APR were, and even learn how to buy a house/get a mortgage. Why isn’t that a requirement for everyone to learn?
So, although I was lucky enough to learn, I know a lot of us also didn’t. Saving money each month can create a safety net around your bank account so that when accidents happen (news flash: they do) you are able to stay afloat. More than just saving is planning for your future. 65 may be long ways from now, but I’d hate to get there and wonder how I’m going to survive.
Wouldn’t it be awesome if you could go shopping at your favorite clothing store without feeling guilty afterward? Or buy your best friend the gift you’ve always wanted but couldn’t afford? Saving gives you the freedom to be able to do things besides just survive. Saving & allocating your money allows you to participate and experience the things in your life, that you actually want to do.
How do I start?
Saving money, just like starting anything else new when it comes to finances (ie., budgeting and paying off debt), can be really intimidating. It took me a few months of “saving” (ie., putting $100 dollars in my savings account and taking it out two weeks later to buy something) to realize what was going to work for me and how much I could actually afford to save.
Saving money doesn’t have to be one big money pot that sits in your account. I actually have 4 savings accounts and put a small bit of my paycheck in each!
What types of savings accounts should you have?
I highly recommend sitting down and making a list of the things you are wanting both short and long term. Listed below are options as to what you can start saving money towards, but there might be added that are more important to you!
The most important savings account of all of them: The Emergency Fund. The emergency fund is for real. life. emergencies. Not paying a medical bill you forgot to budget for or over-drafting your checking from too many coffee runs during the work week. The emergency fund is supposed to hold between 3 & 6 months worth of income. AKA A LOT. AKA, you get injured and can’t work for two months. you still would like to be able to pay your bills and give for your family. Only big emergency items should be used for this account. HOWEVER, saving that much takes a lot of time, and for now, it might make sense to work on saving your first $1000 and then focus on the other types of accounts. Life happens, and starting & failing five times is better than not trying at all. I suggest, if you can, depositing the largest amount here first. I contribute between $100 and $150 since I’m trying to get up to 3 months worth of income.
Buffer accounts are kind of strange and I still struggle with how to optimize mine. A buffer account is utilized for non budgeted or predicted items/expenses. Say you take a random trip to Seattle and pick up some new clothes. The buffer account is there so that you don’t dip into your emergency fund. Taking a trip across the country and need spending money? The buffer could be perfect for that! The buffer account is for small emergencies (like the medical bill you didn’t budget for or the cupcakes you picked up for your work party. You do not have to be as strict with your buffer, as with your emergency, BUT, depending on your life plan, you may want to try not spending much of this. The buffer account should usually hold one paycheck. I contribute $100 a month to my buffer account.
My first Christmas out of college wore out my VISA. I was finally on my own and making enough money to buy presents for the ones I loved in my life…But, although I was making enough money, it didn’t mean I had enough money. I racked up a lot of credit card debt because honestly, it was so fun to pick out thoughtful gifts instead of cheap ones. Putting 5-20 dollars a month into a gift account can help ease for those expenses.
Oil changes, new transmission, snow tire removal, etc. Anything having to do with your car…or even maybe buying a new one? I base the amount I contribute to this account on reliability of my current vehicle….use your own discretion. Since I drive a newer car, I only contribute 30 bucks a month (about the price of an oil change), but, if you’re car barely runs, you may want to increase that amount…
Medical bills & insurance expenses
Maybe you’re an overachiever like me and want to save your buffer for fun things only….have an account you place about the amount of a copay into this account so doctors visits and bills can be covered.
Wanna got to Hawaii in two years? Best friend having a destination wedding soon? Utilize a savings account for trips & airfare. Having a best friend that lives a few states away from me sucks. Not having funds to buy an airplane ticket for a spontaneous trip to see them/ attend their engagement party sucks even more. Although my best friend isn’t getting married until next April (and I did get to go to the engagement party, btw), I’m already setting money aside, my future self-will thank me.
I don’t plan on having kids for more than a few years from now, but a lot of my blog visitors already have little ones! Starting a college fund for your child can be an easy way to allocate a few bucks a month (seriously like $5 or $10) for their future. Say you start putting $10 a month in your account when you find out your pregnant…$10 bucks a month until the child is 18 means you’d save about $2,200 towards their tuition. Obviously, college is expensive, but this on top of a stock program or scholarships could alleviate some debt for both you and your child.