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Stanzak suggests a version of the budgetwhich divides your income among basic living expenses, discretionary spending, and long-term savings and investments.
Pay yourself first If you don't commit to saving, it's easy for other expenses to eat up your cash. Set up automatic contributions so that a portion of every paycheck goes into your workplace retirement account and gets pulled from your checking account into savings for other goals, Stanzak says.
An early start gives your money more time to grow and allows you to take advantage of compounding — when you're earning interest on your interest as well as on your savings. In this classic example from the Federal Reserve Bank how can you make money at 20 St.
Louissomeone who starts investing for retirement at age 25 ends up with more money at retirement, even though someone starting at age 35 contributes three times as much over the years. Avoid unnecessary debt The power of compounding works against you when it comes to debt: Mounting interest charges can make it harder to pay off your balances.
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Limit your credit card spending to what you can pay off in full each month, and be smart around borrowing for big purchases like a home or car. Experts recommend that when it comes to financing a car purchase, for example, you stick to a borrowing term of five years or less — and then driving your car for at least another five years beyond that.
That sets you up for years in which you don't have to make a monthly auto loan payment.
Putting that back in your budget could go a long way toward helping you meet other financial goals like saving for retirement or paying off student loan debt. In your 20s, you've got to establish your discipline — otherwise it will haunt you for a lifetime.
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Janet Stanzak certified financial planner 4. You make Roth account contributions with after-tax dollars, and that money grows tax-free. Using a Roth is an especially smart move for young workers, Stanzak says. Your current tax rate is likely lower than what it will be at the time you retire, so you'll have decades of tax-free growth ahead.
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