Pictures like the one above try to get people to save money. This is great, but some people tend to think that it’s as simple as setting money aside. While it’s noble to help people save money, there are some smarter ways to go about it. I’m not saying that this 52 week money challenge isn’t a good way to get started. It’s just hard to remember something that is weekly like this. Here are some ideas that can be done monthly or even annually.
401(k)s and IRAs: The Secret of Retirement
When it comes to saving money, the best thing that someone who is in their 20s or 30s could do is put it away in an individual retirement account (IRA). If you follow this 52 week money challenge, I highly recommend that you put it into an IRA. The maximum IRA contribution currently allowed is $5,500 per year. While this doesn’t seem like a whole lot, and it isn’t, it’s a great way for people who get out of college with a good paying job to start saving money.
If you find a job that offers a 401(k) with contribution matching, put a substantial amount in there. If you’re a single guy out of college with a $60,000 per year job (yes, these exist for college graduates early in their careers) with minimal expenses, I’d say put in a good $9,000 per year. If your employer ever does match, even a small percentage, then you’ll see a bunch of money saving up over time.
Special Savings Accounts
When you want to save money, you’re not going to want to use a regular savings account from a major bank. Wells Fargo and Chase Bank will offer you a 0.01% APY for a regular savings account. There are other savings accounts that offer 0.03% APY, but that isn’t really a good rate compared to what you could have.
There are some banks out there with savings accounts that have no minimum deposit or balance with an APY of 0.99% and even 1.05%. Banks like Ally and Barclays have APYs like this. Barclays is a bank that I’d personally recommend. The bank has a “dream account.” This account gives you 2% extra interest when you make consecutive deposits for a certain amount of time (e.g. six months).
Separate Half, Adjust, Deposit
I would say that this is the best method of saving money that a teenager in high school could do while they live at home. It’s a method that I used for a while before I went into the “real world.”
Take half of your paycheck and set it aside. Pay bills with the other half and then use the rest of that half for spending money for the rest of the pay period. Immediately deposit the untouched half into your savings account. When the next pay period rolls around, do the same thing, but put the remainder of your spending money into the “untouchable” half of your check. It sounds too simple to work, but if you try it, it usually works out pretty well if you have minimal bills.
Let’s say that I make $200 twice per month as a high school student. I take $100 from my check and put it off to the side and then assess my bills. I allocate $25 for gas and $40 for insurance. I now have $35 leftover for spending money and deposit the other $100. The next pay period rolls around and I have $20 in spending money leftover. I get my second $200 check and not only set aside $100 of that check, I put my leftover $20 with it. I assess my bills. $50 for insurance and $10 for gas (since I had a little leftover from before). This leaves me with $40 in spending money. I now deposit the $120 I had set aside earlier. My bank account now has $220 in one month.
If the above example was consistent for a year, this high schooler has $2,640 saved. A similar plan could work with a college student who was working while in school if they were able to live off their loans. This kind of budgeting allows for more extracurricular activities in the future as well as the ability to pay other expenses such as moving costs for internships and after graduation in college if they continue this kind of habit.
Mix some ideas around. Maybe the high schooler or college student that halves their checks would benefit from making monthly deposits into a Barclay’s dream account. If the example above deposited just $200 per month into a dream account, without making any withdrawals, they would earn $208.71 in interest. This makes their $9,600 turn into $9,813.93 with the 2.5% interest bonus. If this high schooler went to college and earned a masters degree, they would end up with $25,349.77
Let’s say that a single guy fresh out of college gets a job that pays $50,000 per year to start. Barclays’ dream account and an IRA becomes his dream. This 22 year old has 10 years to save and put money away. We will assume that he makes $50,000 per year the entire time. He can only put away $5,500 per year into his IRA and Barclays allows him to make a maximum contribution of $1,000 per month. This makes a total of $17,500 in contributions, leaving him with $32,500 for the rest of his year. When this man is 32 years old, he will have an IRA with $55,000 in it and a savings account with roughly $126,748.84. This gives him a total of $181,748.84 at the end of this 10-year period.
We all know that we need to save money. It’s just hard to remember to actually do it, let alone actually formulate a plan to do so. Let’s also not forget that these ideas I gave are pretty ideal and that they’re just the possibilities. Obviously, there will be people who have to pay off student loans. There will be people who had scholarships and help from family so they didn’t have loans to pay off later. Every situation is different and I hope everybody takes that into consideration.
Just remember: Always pay off your expenses before trying to put money aside. It will avail you nothing to save money if it will just be used in a few days or months.