When it comes to savings, the earlier you can start, the better it is for you –even if you are not able to contribute much for the initial few months or years.
People in their 20s and 30s can not only make the most of compound interest, but also have the luxury of riding out tough or volatile market phases.
Unfortunately, retirement (or saving for it) is not a subject that most young people think seriously about – if at all. However, the below tips by William Schantz will help you appreciate the habit of saving early and how it can pay huge dividends later on in life.
Saving Tips for Young Adults by William Schantz:
Saving Tip 1 by William Schantz – Start As Early As Possible:
According to William Schantz, the earlier you can start investing, the larger your ultimate retirement nest-egg would be – even if you start small and have to deal with speed-bumps along the way.
According to a Vanguard research report, someone who starts investing 6% of their salary at age 25, will end up with a 34% larger retirement account than someone who starts investing the same percentage at age 35 – and a whopping 64% more who commences the investment journey at age 45.
To put it differently, the 35-year-old investor would have to contribute 9% of their salary to achieve the same results that the 25-year-old will achieve with just a 6% contribution rate.
Saving Tip 2 by William Schantz – Avoid the Temptation to Cash Out:
A lot of people, upon switching jobs, decide to cash out on their 401(k) plans – instead of rolling the plan over to an IRA or their new employer. Cashing out diminishes the magic of compounding and makes it almost impossible for you to cover the lost ground.
If you do not want to roll over, you can let your money stay exactly where it is – especially if the current plan is a good one. Also, William Schantz of Mid Atlantic Financial LLC wants every young adult to keep in mind that cashing out the 401(k) before the age of 59 ½ subjects you to income taxes along with a 10% early-withdrawal penalty.
Saving Tip 3 by William Schantz – Capture the 401(k) Match:
If your current employer is offering to match your 401(k) contribution, try your best to max out the contribution. As per the IRS’s latest guidelines, employees are allowed to contribute a maximum yearly amount of $20,500.
Younger, lower-paid workers are naturally likely to contribute below the matching rates – according to a recent study, approximately 40% of workers in their 20s contribute less than the matching rate, compared to just 20% of employees in their 50s.
William Schantz says that, in order to have a happy and stable retirement, it is important to indulge in good financial habits early on in life. This involves keeping your spending in check, saving as much as you can, and investing a portion of your savings regularly. If you are a young adult, remember that you have the irreplaceable advantage of time on your side, and you should strive to make the most of it.