Your financial needs change drastically in each stage of life, and adjusting to the differences can be difficult. One of the most challenging adjustments to your financial life is the evolution of savings based on income level, personal commitments, and long-term goals. Priorities change over time, and it's important to reflect your ever-changing personal life in the way that you save. Here are a few simple ways to save wisely in every life stage and situation.
These tips are just a few basics to get you started on the right track — remember that for comprehensive savings plans, individual research is extremely important!
Teens to 20
- Save gift money: A lot of major life events at this age result in cash gifts from loved ones. Rather than spending every penny, think long-term and save any money given for birthdays and graduations.
- Apply for obscure scholarships: If you're going to college, apply for obscure scholarships. Even if the amount is small, any reduction of your student debt is a penny saved in the future!
- Cut social costs: Because maintaining a vibrant social life can be such a major expense in your younger years, try to save money by planning inexpensive activities with friends. Of course it's impossible to get out of spending money all the time, but whenever possible you should organize a dinner party at home instead of in overpriced restaurants.
- Budget what you can: While most jobs at this age don't pay well, try to budget anyway. Set aside your waitressing or coffee shop tips as a "fun fund," then save whatever of your paycheck that's not going to bills.
- Live with family: As lame as it can be to live at home while your friends are moving into impressive apartments, sometimes it's better than accruing debt. If your situation allows, save on rent costs by living with family until you're financially stable enough to pay rent debt-free.
- Learn to say "no": This is a time in your life when many people will start asking you for a lot of things, whether it's a donation to your alumni association or to lend $20 to a friend. Get into the practice of gracefully turning others down.
- Practice moderation: At this age, you've probably found a more steady career. It's important for you to learn moderation in the face of higher income and refrain from rashly spending your excitingly high paycheck.
- Live below your means: While you could spend your entire paycheck on rent, food, and transportation, you should strive to spend far less and live a frugal life. Save the remainder of your income, or use it to pay off debt from any existing student loans.
- Start retirement savings: If your company offers 401k matching, strive to put in at least their maximum match percentage to ensure that you're getting the most for your money. Even if you can only put forward a tiny percent of your income due to other financial obligations, establish retirement savings now. Your future self will appreciate it!
- Compromise spending wherever possible: Do this wherever you can, whether by using public transportation or piling into an apartment with roommates. You'll never be this young or free again, and it gets harder to do these types of things as you grow older.
- Put money into an emergency fund: Don't touch it! A safe amount to have on reserve is six months' pay, and if that's not possible, try to put away as much as you can.
- Decide your must-haves: Do you absolutely want to drive a new car within the next few years? If so, you should find ways to cut costs in other areas of your life. Is travel your main goal? Perhaps you should bike to work instead of paying for a car, insurance, and gas. Do you dream about a huge, big-budget wedding? You'd better start setting aside some bridal funds.
- Increase your retirement savings: As your longstanding debts (hopefully) dwindle, you should step it up big time. This is around the time when many graduates finally pay off their 10 years of student loans, so celebrate by preparing for the future!
- Ignore everybody else's journey: "Keeping up with the Joneses" is a dangerous trap to fall into, and can lead you to spend excessively on totally unnecessary things. Just because your coworkers are buying boats and huge TVs doesn't mean that you need to do the same.
- Start good habits with your children: Teach them to save their money, from allowances to birthday gifts. Now is also a great time to start saving for their future college expenses!
- Live small: Remember that bigger isn't always better. A large house means buying more furniture, more time spent cleaning, and more distance from your family.
- Work hard now: If your kids are a bit older and are okay with distance from you, consider advancement opportunities within your career. You could also work on the side to bring in more funds to save for leisure or retirement!
- Beef up your emergency fund: You're at an age when medical emergencies become a bit more commonplace, either for you or your older kids. It's important to have liquid funds available if something unfortunate arises.
- Keep on contributing to your retirement savings: It's getting closer! You should be contributing as much as you can spare into your 401k at this point in life, as well as investing elsewhere if you're interested in that.
Your 50s (and Beyond!)
- Use empty nesting as a savings opportunity: Now that your kids are out of the house (or at least independent), you should use their absence as a way to save more for the coming years. All the money that was previously spent on their food, clothes, school activities, and entertainment costs can now go towards your retirement!
- Enhance your benefits: In these years, it's extremely important to have the best possible medical, dental, and vision coverage. Your physical well-being is nothing to skimp on, so use some of your saved funds to beef up your benefits.
- Make a retirement roadmap: Plan out the average amount that you'll need per month over the next 30-40 years, get life insurance and healthcare issues straightened out, and document everything. Make sure that you're set to retire! If not, kick retirement savings into high gear. Remember that you're entitled to catch-up contributions after the age of 50.
- Downsize: The older you get, the less space you'll need or want to care for. Save yourself the headache by moving into a smaller home that's more appropriate for a near-retiree.