Here are some easy ways to get started now.
Determine your after-tax incomeFirst, determine what your paycheck is after taxes have been taken out. This is the adjusted amount you should use to determine how much money you have to work with each month. If you work for yourself, take this into consideration when calculating your own after-tax income.
Consider budgeting with the 50/30/20 planYou should break down your monthly after-tax income into three categories: needs, wants and savings, and establish a percentage that aligns with each area.
Needs (50 percent): Your needs are the items you can't live without, such as groceries, rent, a mortgage or credit card payment, utilities, health insurance or a car payment. Ideally, no more than 50 percent of your paycheck goes toward this category.
Wants (30 percent): Your wants are discretionary purchases, such as cable and clothing. These items aren't essential to your survival, but are nice to have.
Savings (20 Percent): The final 20 percent of your paycheck should be allocated to savings under this plan.
Boost your savings
It can be easier than you think to put more toward your savings. Here are some savings tips to keep in mind:
- Automate your savings to ensure that a set amount will make it into your savings accounts. This will reduce time spent number-crunching.
- Have a percentage of your paycheck deposited into your checking account and another percentage into savings when you sign up for direct deposit.
- Pay yourself first. Before you do anything else with your paycheck, take a cut of your pay and deposit it directly into your savings account.
- Establish a budget you can stick to. By cutting back on your discretionary expenses, such as a dinner out or shopping excursions, you can put toward more savings.
Saving for retirement
In addition to saving for emergencies and other goals (such as vacations or a college education), it's important to plan for long-term financial goals like retirement.
If you're young, retirement is fairly easy to put off and worry about later, but life often doesn't work out the way you planned. It takes careful planning to make sure that you're well taken care of in retirement, especially given that life expectancy is rising, and relying solely on Social Security or a pension is risky.
The amount you'll need depends on your personal preferences, as well as your age. Generally, financial professionals suggest that you set aside 10 percent to 15 percent of your annual income in order to pursue a comfortable retirement lifestyle.
Also, annuities can provide guaranteed income in retirement. Learn more about annuities to see if they are a good fit for your needs.
You should revisit your savings goals every year with your financial advisor, given that your salary may increase and situations may change in your personal life. Regularly reviewing your plan will help you understand whether you are on course to meeting your savings goals or need to switch up your strategy.
Want to learn more about how to save? Check out these five tips for improving your retirement road map.