Finishing school and getting your first real job is an exciting time. It often means getting a larger paycheck and making many important decisions.
One important decision is whether to start saving in an employer's 401(k) and another is how much to save. As a general rule, starting to save as soon as you are eligible is a great financial move.
If the employer matches employee contributions, it's smart to save at least enough to receive all of the available matching contributions. Many people save 6 percent of their pay because employers will match up to 6 percent of pay either dollar for dollar or 50 cents for each dollar you save.
Think of the matching money as free money, and don't turn it down. If you develop the saving habit right away and stick to it, your savings will be light years ahead of the procrastinators in your age group.
In addition to saving money for retirement, it is important to save money for emergencies, unexpected expenses and other goals. Many people have good intentions to save, but they try to save money out of their "financial leftovers" after they have paid everyone else. With many hands sticking out saying, "Pay me," it's easy to run out of money.
Instead of saving out of your leftovers, many financial planners recommend that you "pay yourself first" and treat saving money as one of the most important bills you pay. Savings comes first and we reduce our spending to live on the money we have left.
Some of the benefits of the 401(k) include that the money comes out automatically and we learn to live on a slightly reduced paycheck. If we can automate our regular savings, we can have automatic, low-effort regular savings too.
Your employer or bank can help you to automatically deposit part of your paycheck to a bank or credit union savings account. Select a percent of your income that fits with your budget.
Some people like to save out of each paycheck. They adjust to always having a slightly smaller paycheck.
Other people prefer to have money automatically transferred from their checking account to a savings account, just like paying a bill once a month. For example, you could have $175 transferred from checking to a designated savings account on the 15th of each month.
After one year, you would have $2,100 saved, after five years - without adding any interest - you would have $10,500 in savings. What could you do with $10,500?
Your odds of getting ahead financially are much greater if you start saving as soon as you can and make your savings automatic. Even small amounts of money can add up to be a lot. So don't wait, start saving money today.