So at what age should you begin saving money for the future? The practical response is that you can start working and making money at any age, whether you get paid for chores at age five or start working after graduating from law school at age 25. So, any age is an excellent time to start saving money.
However, take some time to consider your reasons carefully and your financial situation to get to the heart of this query. Sincere responses might provide you with the motivation you require to begin working toward your savings goal immediately.
So when should you start setting money aside for the future? The realistic solution is that you can begin working and supporting yourself at any age, whether you receive payment for household tasks at age five or earn a living after law school at age 25. On the other hand, starting to save money is a brilliant idea at any age.
To get to the bottom of this question, carefully evaluate your motivations and your unique financial situation. Then, sincere responses can be just what you need to motivate you to start saving money immediately.
The best time to start saving money is now if you have a short-term objective. The requirement for an emergency fund is a crucial short-term objective to plan for. According to Bankrate, your emergency fund should be three to six months’ worth of bills.
What Is Your Discretionary Income?
Discretionary money is the first aspect when determining when to begin a serious savings plan. The amount of money you have left over after paying your mortgage or lease, car loan, taxes, bills, and other required living expenditures is discretionary income, also known as disposable income.
The earlier you start saving to meet your short- and long-term goals, the experts suggest, the less discretionary money you have.
However, there is a strong desire to spend the extra money to upgrade your lifestyle if you are at a stage where you constantly have a sizable amount of discretionary income. Therefore, now is the perfect time to begin aggressively saving for the future and potential financial difficulties.
How much do you need?
The amount of money required to reach your savings goal should be considered after you clearly understand your goals and the available income to save. For example, you’ll need between 10 and 20 per cent of the purchase price as a down payment if you’re buying a car or a house.
The regular tuition when your child reaches college age should be the desired dollar amount if you’re saving for a college fund for one or more children. Most 529 savings plans include tuition inflation rates to help you determine the overall cost. They also provide possibilities for prepaying tuition.
It would help if you determined your desired replacement income for retirement (TRI). This represents the portion of your current income you will need to survive once you quit your job.
You should increase this amount by 30% to determine how much money you’ll need to put aside. For instance, you should set aside 24 per cent of your annual salary for retirement if you require 80 per cent replacement income (80 per cent times 30 per cent).
If you can’t save enough money to reach your goals within the time frame you’ve set, go through your budget and find places to minimize costs. If you need to, think about taking on more work immediately.
Where should my savings be kept?
Realizing that your ambitions will also influence where you invest your cash is critical. A conventional savings or certificate of deposit (CD) account is adequate if you save for a short-term objective, such as purchasing a car or a vacation.
Consider a savings bond if your non-retirement objective is more than five years away. Savings bonds are often safe and offer a higher rate of return than bank savings accounts.
Investigate your employer’s 401(k), Roth IRAs, mutual funds, and other profit-sharing programmes for retirement.
When deciding at what age to start saving, you should also consider the movement of interest rates. For example, suppose your financial situation is favourable, and interest rates are higher than usual. In that case, this should be a solid incentive to save more money.
Younger saving is preferable.
Parents are advised by financial advisors to instil in their children the value of saving money. Use that as motivation for yourself and to maintain the pattern in your family. A 2011 survey by Ameritrade Holding Corp. indicated that younger people in their 20s save even more assiduously than their parents do.
Encourage your young children to save as soon as possible if you have any. Transferring them from the piggy bank to a custodial bank account will help you mentor them as they learn how to manage their money as responsible adults.
We also advise you to match their funds to encourage them. There is never a wrong age to start making financial plans.
