Long Term Saving

Right now, odds are you’re living with a parent or guardian in some form that’s supplying your necessities. But at this point it should be clear that you need to be able to have enough to live on when you move out on your own.

The truth to saving in the long term is this: it’s all about having something to fall back on if something bad happens. It’s nice to have an emergency fund that’s larger than $1,000. Say you lose your job, or have a health problem and no insurance. You’ll likely need more than $1,000 to cover those costs.

Tips

The most sensible steps to long term spending are from small to large: Start small. End large.

Steps:

1. Pay off debts. Student loans, house, etc. (You can do this if you want simultaneously with the other steps, though they should probably go in order.

2. $1,000 Emergency Fund.

3. 3-6 Month Safety Net (Your monthly budget x 3 to 6)

4. 7%-15% of your income into retirement.

If you have student loans to pay off, make sure you’re able to pay those and save at the same time. Don’t feel like you should put off saving just because you’re having to spend a few hundred dollars or so to pay off these loans: do both at once.

Your credit history shows how responsible and reliable you are. Many employers will now require a credit report prior to hiring an employee. Now that’s something to think about.

Say you just get out of high school and you make $15,600 a year at minimum wage job. Consider a fifth of that goes to taxes and health insurance. You’re taking home $12,480 a year, or $1,040 a month. Not much to work with is it? You may have to work two jobs. Living off Mom and Dad are looking better and better.

It has been well documented that people with more than a high school education will make considerably more income in their lifetime. So consider going to a trade school, or getting a 2 year associate degree, or a full 4 year college degree. Set some goals for yourself. Write them down. Act on them.

Let’s say you’ve already finished college. (Phew!) You are making $37,500 a year, which is a pretty average predictor of income for someone that just left college and entered the real world.

A fifth of that goes to deductions for taxes and Social Security, leaving you with $30,000 a year or $2500 a month. You should put $375 per month into savings, taking 2.66 months to fulfill your Emergency Fund and a little more than 2 years to build your Safety Net. Ahh: Financial Security. It feels far more satisfying than it may sound.

Review your goals periodically and re-adjust your savings and your investments. When we’re old, we’ll need it. Trust me.

Whatever you get out of all of this, just remember, above all, to be spend sensibly, and understand that saving can be, and should be, a truly powerful force in your life. Utilizing proper spending and generous saving will secure your future. It’s simpler than you may think.