When you’re just starting out, it can be hard enough to pay your regular bills, especially if you’re juggling rising rent and student loan payments on a starting salary. But you can actually start saving toward bigger goals, too, such as traveling, buying a house and retirement, even if you just set aside a small amount with each paycheck.
“The great advantage Gen Z has is time,” said Rachael Burns, a certified financial planner and founder of True Worth Financial Planning. “The earlier you start planning for your financial future, the less effort it takes to achieve your goals.” Keep reading to learn how to save more.
Your Budget Gives You Control
First, figure out how you can divvy up your paychecks toward multiple goals.
Rather than being restrictive, a budget actually helps you focus on your financial priorities. “A budget doesn’t mean you can’t spend money, you just must design it within your means and based on what you feel is important,” said Gerald Grant III, a certified financial planner and financial advisor with Equitable. “You can have everything you want if you’re willing to sacrifice some things you don’t need.”
When you know where your money is going, you’ll be able to figure out how much you can afford to save toward bigger goals. You may also notice some everyday expenses that add up to more money than you realize, and that you can cut back to focus on what you really care about — like deciding to eat out less so you can save more money for a big trip. The budget shows you what’s coming in, what’s going out and what your money can do.
“The easiest way to do that is by making a list of your monthly bills and an estimate of your annual expenses based on the previous year,” said Grant. You don’t need to do this continuously, but it can be a good starting point when deciding where to focus your dollars.
Take Our Poll: How Do You Typically Split the Restaurant Bill?
“Proactively monitoring your expenses gives you the ability to trim the fat where needed. Often, we think it’s the large purchases that hurt us the most, but in actuality, it’s the day-to-day spending. If we can find more ways to save on the small things like coffee in the morning, taking lunch to work and drinks at the bar, we will be able to create more cash flow to accomplish the bigger goals.”
Make Retirement Savings Automatic
Saving for retirement may be furthest from your mind when you’re in your 20s. But that’s when you can have the biggest impact on your future balance at the least cost. Money you set aside now will have 40 years to grow. If you start early, you’ll need to set aside so much less money to reach the same financial goals than you would if you started later.
And it can be easy to save for retirement if you have a 401(k) at work, especially if your employer matches your contributions — that’s free money. You can sign up to have the money automatically invested from your paychecks before you have a chance to spend it on anything else.
“Keep it simple,” said Grant. “The more you can put your savings and budgeting on cruise control, the better.” With direct deposit into your employer’s 401(k), you automatically save some money for retirement before you get used to having it.
“My dad always taught me to pay myself first. Every check I receive, I automatically put a percentage into my 401(k), at least up to the amount being matched by my employer,” he said. “As a result, I’ve gotten used to living off what’s left. This forced savings compounded over a 30- to 40-year career can be very significant when thinking about retirement.”
If you don’t have a 401(k) at work — or if you want to invest more money — you can set up automatic investments into a Roth IRA with a brokerage firm, mutual fund company or bank. There’s no minimum age to contribute to a Roth IRA, you just need to have earned some money from working. In 2022, you can contribute up to $6,000 to a Roth IRA, or up to the amount you earned for the year from working, whichever is less.
“Automate these retirement savings so that the money is being set aside without needing to think about it,” said Burns.
Build Your Emergency Fund
Setting aside money for an emergency fund is much less glamorous than saving for a house or travel, but having this fund is a way to make the rest of your goals possible. This way, the money can continue to grow for your other goals without having to raid those accounts or end up in having to spend a lot of money on high-interest credit card debt if you lose your job or have unexpected expenses, such as car repairs.
“Before attempting to tackle any financial goals, it’s important to first establish an emergency fund that covers three to six months worth of your expenses,” said Burns. “Keep it in cash where it is safe and easily accessible in case of a true emergency.” Keep it in a separate account from the one you use to pay your every day bills.
When you know that you have some money available for other expenses, then you can feel more comfortable saving more money for your other goals.
Start Saving for a House Early
After you’ve set up automatic contributions to a retirement savings account and built up your emergency fund, then you have a much better idea about how much you can afford to devote to your other goals. Burns recommends working backward — setting aside some money for medium-term goals, like buying a house, and after that figuring out how much you can afford for more flexible goals, such as travel.
“You would then tackle your intermediate-term goal, like saving for the purchase of a home,” she said. “Determine how much you can set aside specifically for this goal without interfering with your retirement savings plan. Then you can look at short-term goals or lower priority goals like travel and see if you can fit that in with your budget.”
It still may be years before you’re ready to buy a house, but it helps to start saving now. You can set aside a little money with each paycheck into a separate savings account earmarked towards saving for a home. You can also set up automatic investments to your homebuying fund from your paychecks, so you don’t need to think about that either.
You may not be ready to think of specifics when you get started, other than to know that homebuying is a future goal. As you begin to amass more money toward a down payment, then you can start to do some research. Look at the houses in your area (or where you would like to live) and their costs, and figure out how much you’d need to save for a down payment so you have a general savings goal.
Meanwhile, work on building a good credit record, which can help you qualify for a lower-rate mortgage when you’re ready. “Start early with good credit habits,” said Burns. “Keep an eye on your credit by running credit reports on yourself periodically.”
“You never know when you are going to have your credit checked when applying for a loan, rental home or even a job,” said Burns.
Then Build a Travel Fund
After you’ve set your other financial priorities, then you can focus on more flexible goals like travel. If you can’t afford a big trip every year, you could take one every few years, or smaller trips more often. Do some research into how much the trips will cost, then set your savings goal and time frame. You may need to wait longer before saving enough to go on a bigger trip. Be realistic about the costs and the savings you can afford.
You can set up automatic contributions into your travel fund, like you do with your retirement savings and down payment fund “That way you already have the funds earmarked when it comes time to plan your next trip,” said Grant. The key is to save for your trip ahead of time, rather than landing in high-interest debt afterwards that can make it more difficult to reach your other goals.
Also make it a habit to search for deals, which can stretch your travel budget. “One thing my wife and I love to do is look on travel sites that have discounted fares to select destinations, or discounted hotels when you stay during a specified period,” said Grant. “This is a great way to still do what you love while being able to keep it within your budget. You may not be able to plan the exact trip you had in mind at the moment, but if you’re open and flexible you can still fulfill the underlying goal.”
Watch Out for Lifestyle Creep
As your salary rises through time, reassess your financial priorities and save more toward your most important goals.
“As you are progressing in your career, it’s important to watch out for lifestyle creep,” said Burns. “This is when your income is gradually increasing with each raise, promotion or job change, but your expenses naturally increase along with it so that you don’t end up having extra money for savings. Make sure you are establishing a savings plan that is increasing as your income grows over time, so that this extra money doesn’t just evaporate.”
Continue to automate your savings toward your financial goals and boost your contributions when you get extra money. “Make sure to automate savings but not spending,” said Burns. “Automate savings so that it’s as effortless as possible and you forget that you ever had the extra money in the first place.”
But even if you automate your savings, you should review where your money is going at least once a year — to see where you stand and make sure the way you save and spend your money still reflects your financial priorities and goals.
“You must identify what is most important to you and be willing to give up or cut back on everything else to obtain whatever is most important,” said Grant. “If not, there will always be another reason as to why you can’t achieve your goal.”
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Gen Z: You Can Save for Travel, a House and Retirement — Here’s How