The answer to the question ‘What is the best age to start saving money?’ is manifold. The best thing to do is to look at your personal financial situation as well as your motivation behind your saving plans and in this article we will take an in-depth look at the various aspects of saving money.
Are your saving goals long term or short term?
Are you looking to go on an exotic holiday or have you seen an expensive pair of shoes that you absolutely must have? Those would be your short-term saving goals. If you want to buy a new car or even your first house, then we’re looking at long-term saving goals. While short-term goals are those that can be reached within a period of 6 months to a year, long-term goals take 5 years or longer to reach, such as saving for retirement. Short-term saving goals require action immediately, such as when building savings for an emergency fund which should typically equal 3 to 6 months worth of general expenses. The best age to start saving towards your retirement or other long-term financial goals is from your twenties or as soon as you start earning an income.
What is your disposable income?
When embarking on a serious savings plan of action, the first thing to look at is your disposable income; the money you have left after paying your living expenses such as your monthly groceries, your insurance, car payments and bond payments. The lower your disposable income, the earlier you should start saving. Don’t be tempted to use the extra money to live a more lavish lifestyle, especially when you have a larger disposable income. Save as much as you can; you never know which financial challenges may rear their ugly heads in the future.
How much you will need to save
If you want to buy a car or a house, you’ll generally need to pay a deposit of approximately 10-20% of the purchase price. When saving for retirement, your replacement income should be identified so that you can determine what percentage you would need to live comfortably. If you come to the conclusion that you won’t be able to meet your goals with the minimum savings, you’ll have to review your budget and cut down on expenses where possible.
Where you should put your savings
For short-term goals such as a holiday, a car or a gadget, you could open a deposit account or a traditional savings account. For longer-term goals such as the ones you’re aiming to reach within 5 years or so, a savings bond would be more beneficial. Savings bonds have a better interest rate than traditional savings accounts and they are relatively safe. Retirement savings could be invested in mutual funds, for instance. For more information on investment options, speak to your bank manager or your financial advisor.
In closing
Basically, the earlier you start saving, the better it is. In fact, there is no such thing as being too young to plan and save for your financial future. If you are a parent, guide your children on their journey to financially responsible adulthood by getting them to start saving from an early age.