Seeing money go into your bank account for the first time is exciting. Whether that’s ad-hoc cash from bartending or you’ve got your first paycheck from a regular part-time job, having your own cash feels like the first step towards independence for many young adults.
Many people use this extra income to fuel their cars, support their hobbies, buy clothes, and pay household expenses. Saving for the future isn’t usually a top priority – but getting started early can significantly help you get ahead. In this post, we explain why and share tips to get you started with your savings.
Get the most significant return on your investment
When you’re young, financial goals can feel a long way away. Why should you worry about saving for college, a house deposit, or your pension when there are many years before you need this money? The answer is simple: compound interest.
If you choose to put your money in a savings account rather than simply leaving it in a current account, you can get the biggest return on your investment. Your money earns money just by sitting in the account. This is because these accounts offer interest on your funds, increasing your balance yearly. Compound interest refers to the interest you earn on this initial interest – if you put $100 into an account, and it makes 5% interest, the first year, you’ll have $105. The second, you’ll have $110.25, as the interest is calculated on your total account balance.
This means the earlier you start saving, the more years you have to take advantage of compound interest. What seems like a slight increase the first year will build up and offer you a great return on your investment. Plus, if you just leave this money in a savings account, you’re earning money without doing anything.
Have savings for the big milestones in your life
While your plans may well change throughout your life, many people will have some idea of critical milestones from a young age, whether that’s buying a home, traveling, going to college, or starting a business. Saving for the future, whatever that looks like can help you achieve your goals more sustainably, rather than saving a lot of money in a short period.
Don’t forget – there’s no reason your chosen milestones can’t change, so don’t feel tied to your original commitments in the future if they no longer work for your needs. Simply try and put away an affordable amount of money each month, and you’ll be all set.
Improve the quality of your retirement
When you’re 18, retirement feels very much like a future problem. However, starting early can help ensure you enjoy a high-quality retirement rather than being concerned about money. If your employer offers you a pension plan, it can be worth seriously considering contributing to it – not only will this give you savings in the future, but when you’re young, you potentially have smaller outgoings.
On the one hand, this can mean more money to spend on days out, but on the other hand, it could be worth investing it while you can afford to do so. You may have to tighten your financial belt once you have rent and bills to pay. Especially if you notice that you still have money left at the end of the month after buying everything you want, it might be time to consider saving for the future.
Money-saving tips for young adults
It can be hard to start saving if you’re used to having lots of disposable income or aren’t earning much in the first place. If you can, look for debit cards that offer a round-up service. When you purchase an item, it rounds up the total to the nearest dollar and puts the difference into a savings account. Small changes like this often mean you don’t notice the money going out but make a significant impact.
If you’re getting a regular wage, you could also set up a direct payment to move money from your current account to your savings account on the day you get paid. This automatic transaction means that you don’t have to commit to moving the money manually and stops you from holding on to it for a little longer.
A better financial future
Adulting isn’t easy, but there are plenty of reasons to start saving for the future from a young age. Remember, your savings should be proportional to your income – even if you’re just putting $5 in a savings account, that will earn interest. You don’t need to make yourself struggle to invest in your future.
Author: Laura Gardner
Laura is passionate about helping young people understand their finances earlier in their lives to allow them to make considered decisions.
