At my high school, students were allowed to pick three electives to add to their schedule in addition to their core classes. And the options were endless. My school offered engineering, acting, dance, economics, cooking, adventure gym, art, and so many more. It was exciting for kids who never had any say in what their school schedule looked like before. I usually picked classes like Acting and Dance to add to my schedule. But looking back on it now, I really wish I had picked up a personal finance class to learn more about saving.
Despite how relevant and applicable personal finance is once students graduate, only seven states currently require students to take a personal finance class before graduation. The rest of the country leaves students on their own when it comes to figuring out their finances. This is a problem since even though parents do their best to educate their children, most kids don’t listen. I know I sure didn’t.
But after a lot of research, I finally turned a corner and got my finances under control. If you’re like me and don’t know where to start, here are some tips that will help you grow your wealth:
1. Build an emergency fund.
If you’re lucky, you won’t need to use this money much. But you’ll feel much better knowing you have a cushion to tap into when you face the unexpected. Your emergency fund should equate to six months of expenses. It includes things like rent, utilities, loan repayments, recurring bills, groceries, and gas. If you own a house, there may be some additional expenses you want to include as well. This budget can look daunting when you first start saving, but small, frequent contributions can make putting money aside much easier.
2. Contribute to your 401k.
Retirement may feel far away, but time flies whether you’re having fun or not. And before you know it, you’ll be in your 50s or 60s, hoping to retire. Naturally, you’ll want a generous income to live off of, and a 401k can provide that. The money you contribute to a 401k is pretax, which means the more you contribute, the less income you’re taxed for. Most employers also match contributions to a 401k to a certain percentage. That’s literally free money! And who doesn’t like free money?
The only caveat of a 401k is the tax on withdrawals. If you’re interested in a retirement account with tax-free withdrawals, consider opening a Roth IRA. You can’t make pre-tax contributions and the annual contribution limit is lower, but you won’t be taxed when withdrawing that money later. And like a 401k, you can invest the money in your Roth IRA.
3. Open a high yield savings account.
A high yield savings account is perfect for keeping your emergency funds and any other savings. While traditional banks pay very little interest on savings accounts, high-yield savings accounts pay higher interest. This may not be a lot, but it will be more than you’d have if you kept your savings in a traditional savings account.
4. Set some goals and pay attention.
Saving can be hard in a consumer-driven world. But getting intentional about how you want to spend your money can help keep you from going swipe crazy. Ask yourself what your priorities are and examine your current spendings. Does your spending reflect your priorities? What items are you spending the most on? Where could you reduce spending?
While it feels good to avoid looking at your balance, knowing where your money goes is super important. If you know you like to spend money on certain things, set up a sinking fund to spend on those things specifically. For example, if you know you love to travel, open a savings account where you contribute money to spend on traveling.
While these few tips don’t encompass an entire personal finance class, they’re a good place to start. The key takeaway is to be mindful of your spending and your financial goals. As long as you do this, the rest will come pretty easily. For more information about personal finance, try following finance coaches and other educational resources on social media. They do a great job of breaking down complex financial concepts into easily understood content. Saving and budgeting can seem like an impossible task, but it doesn’t have to be.