For the B Bar’s May blog link-up, they asked this question: what are you doing to prepare for your future? I’m interested to see what everyone else has to say, because there was only one thing that really came to my mind: saving money. This is an ongoing challenge for me, as I imagine it probably is for many people! There’s a constant seesaw in my head between “I need to save…” vs. “I work hard and I deserve to buy this thing I want…”. Add to that the fact that I’m a blogger/design lover, so I’m constantly exposed to pretty things, and the fact that I live in one of the most expensive cities ever…and well, I think anyone can understand the struggle!
That being said, my parents have ingrained in me the importance of saving, so even though I certainly don’t feel that I’m qualified to give “advice” on the topic, here are a few things I’ve personally learned since I started working and saving.
You need to educate yourself.
Sadly, while our many years of education teach us a lot of super useful stuff such as how to do long division and calculate the sides of an isosceles triangle, they leave us ill-equipped to understand how to handle money when we get out in the world and start earning a salary. There is an overwhelming amount of information out there, which can make it really difficult to know how to begin. I would recommend reading this book, if you don’t know much about saving for retirement and and just want a place to begin. It’s straightforward, easy to read, and full of useful information. My Mom has done a lot of reading and research on personal finance, and she told me that as far as just breaking things down to the need-to-knows, without a lot of complicated mumbo-jumbo in between, this book is an excellent place to start.
Start saving NOW.
Anybody who knows anything about finance will probably tell you that the younger you are when you start saving, the better off you’ll be in the future. This is simply because when you start saving at a younger age, your money has more time to grow and multiply for you. Two people can save the same exact amount but if one starts twenty years later, and one starts twenty years earlier, guess who’s going to have a lot more money at the end? I forget where I read it (probably in a Suze Orman book), but it’s true: youth is the biggest asset you have on your side when it comes to saving…because starting young = time for your money to grow. So don’t waste that! Start saving now, even if it’s a small amount. If you wait until you’re forty and suddenly decide to realize then how important saving is, the sad fact is that while it won’t be “too late,” persay, you will have lost that advantage.
You only have yourself to depend on.
This is incredibly important to understand. You cannot depend on Social Security to fund your retirement. It will not be enough, and it might not even be around by the time we hit retirement age. You’re going to need a lot of money to live on after you retire. Obviously, the calculations are different for everyone depending on where you live, how you live, where you retire to, etc., but the point is, you cannot depend on the government to take care of your retirement. The money you retire on will need to last years and years and allow you to live the life you want to live, comfortably and securely. I’m not saying this to intimidate anyone from getting started with saving, but rather to impress upon you (and myself!) how important it is to start saving when you’re young, so your money has as much time as possible to grow and become a large enough sum to carry you through the retirement years.
401k and Roth IRA.
Again, not a financial expert here, but two things that I know are important to have for retirement are a 401k and a Roth IRA. Breaking it down into the simplest terms here, a 401k (or 403b – essentially the same thing), is an account you open through your employer, and you allocate money from your paycheck to go into it – pre-tax. I’ll say that again: PRE-TAX. That means you’re “bypassing” that money being taxed, by putting it in a 401k. It will be taxed later, when you go to take the money out, but by that point you will be retired, and in a lower tax bracket. You need to be the one to take the initiative of going to your employee retirement services office or HR or wherever, and allocating a certain percentage of your paycheck to go into the 401k each pay period. Make it automated and you won’t even see that money, so you won’t miss it. Pick a percentage that works for your living situation. If it’s too high, you can always bump it down. IMPORTANT: Many companies offer a match. What this means: if you contribute a certain amount of $ to your 401k, they will “match” that, and put it in your 401k. Do you get how amazing that is? THAT’S FREE MONEY! I hate to be harsh, but if your company offers a match and you don’t contribute enough to get the match, you’re a fool. If you learn one thing from this post, I hope it’s that. Find out if your company offers a match and make sure you get it if they do!
The Roth IRA is a different retirement account that you set up on your own, outside of work. You can set one up on Vanguard or through other financial institutions. This account is different from the 401k in that the money that goes in is post-tax, BUT you will never be taxed on this money when you go to take it out. Which is great! There’s a lot more to say on 401ks and Roth IRAs, which is why I suggest reading up on them a bit in the book I mentioned above, or talking to your employee’s retirement services office.
You need an eight month emergency fund.
This is straight from financial expert Suze Orman. You need an eight month emergency fund to cover you in case of a health crisis or in case you lose your job. This needs to be in “liquid” savings – which just means, you can get to it immediately. Your 401k is not an emergency fund – because it’s likely in stocks and bonds, and it can’t be touched until retirement. Your savings account can be your emergency fund – you can get to the money IMMEDIATELY in case of emergency. However, your emergency fund shouldn’t be the same account that you use to save up for vacations or for a house or whatever, and it definitely isn’t your checking account that you use for spending money. It should be strictly for emergencies, and never touched unless an emergency comes up. To calculate what you need, add up your living expenses – rent, food, phone, etc. Multiply it by 8 months. That’s what should be in your emergency fund. To be honest, this is where I struggle the most. When it comes to putting money towards my emergency fund or buying a box of macarons at Ladurée, or a new book, or a new piece of camera equipment…I often make the choice that’s more immediately gratifying. Working on it!
Get out of debt.
Here’s another thing I learned from Suze: student loan debt never goes away – not even if you declare bankruptcy. Not even if you pass away. It NEVER. GOES. AWAY. Weird, right? So if you have student loan debt, you need to put big efforts towards paying it off. BUT. You should still be contributing to your 401k, rather than putting ALL of your money towards the debt repayment. Why? Because remember what I said above – youth (i.e., time), is your biggest asset when it comes to saving for retirement! So you can’t waste it, even in the interest of paying off your debt. You would need to do both at the same time. There are millions more things to say about debt that I can’t cover here, so please, if you’re in debt, do some more reading on the topic. This Jess Lively podcast is a great place to start for inspiration – she interviews a couple about how they got rid of $40,000 worth of debt in under two years.
There’s so, so much more to these topics than I could ever cover in a single blog post (and this is already rather long), but don’t get overwhelmed! If you’re confused by anything I’ve written here, honestly, get the book. They explain it all much better than I can, obviously, and it really isn’t something you can just turn a blind eye to, much as we may want to! For me, saving is a huge challenge, right up there with things like eating healthy, trying to work out, and not subsisting on sugar! But I can’t think of another thing that’s more important to be doing to prepare for the future, so I do have to say that as much as it’s a struggle, it’s something that I’m not going to give up on.
Also, don’t forget to check out how all of the other bloggers in the link-up answered the question: what are you doing to prepare for the future? Check out their posts here:
26 and Not Counting
soak and simmer
Alyssa J Freitas
The Yuppie Files
Little Wild Heart
The Not Quite Adult
Random Little Faves
Perfect Enough For Us
Feathers and Stripes
The Golden Letter
Sequins & Strawberries
Emilie Lima Burke
with love from ellie
Bite My Fashion
White Oak Creative
Whitney Bangel Blog
Turning the Corner…Fearlessly!
IN THE GREY
Beauty and the Pitch
I’m curious to hear your thoughts on the topic of saving, if you’d like to leave them in the comments! Do you think saving is important? Do you struggle with it? Do you have any great resources on the topic? Please share in the comments!
Please note: I am not a financial expert and I can’t guarantee the accuracy, efficacy, or completeness of any of the things I’ve outlined in this post. These are my opinions and things that I’ve picked up from reading and watching financial shows, so please see this post as a starting-off point for educating yourself further on saving!