6 Savings Strategies for Young Professionals

What we’ll cover: 

• As you navigate your career, there are things you can do to help build a healthy financial foundation for the years ahead
• An emergency fund and retirement account are just some of the basic components of financial wellness
• Saving and investing are a good way to put your money to work while you’re working

Money doesn’t grow on trees. As annoying as it was to hear that constantly as a kid, you really do come to appreciate this fact as you get older. Money is a topic that’s often top of mind whether you’re just starting out or getting settled into your career. You’re paying rent, managing your student debt and hopefully, trying to save what you can each month. It’s a tough balancing act, especially when there aren’t any money trees around to shake down. 

As you navigate life’s twists and turns in your career, there are things you can do to help build a healthy financial foundation for the years ahead. 

6 smart savings tips for young professionals

1. Make a budget. A budget helps you see where your money goes each month. For example, how much is going toward necessary expenses like rent and utilities and how much is being spent on discretionary items?

Seeing a breakdown of your expenses can shine a spotlight on where you could save more. You don’t have to do all the math yourself. There are plenty of budgeting apps out there that can help you track those expenses. And assuming you have some money left in the pot after all your expenses are accounted for, you can decide how to put that money to work.

2. Build that emergency fund. Financial emergencies can happen to anyone. Whether it’s a surprise medical bill or urgent car repairs, maintaining a healthy emergency cash reserve can help you cover unexpected expenses that might otherwise put a dent in your finances or get in the way of you reaching your financial goals. 

Ideally, your emergency fund should be big enough to cover three to six months of your living expenses. But this is a general target. Depending on your personal situation, you may need more.

3. Contribute to a retirement account. If you haven’t been able to contribute to a retirement account, there’s no time like the present. If your employer offers a 401(k), consider automating your contributions (if the option is available). Remember, the sooner you start the better, thanks to the power of compound interest. Does your job offer matching contributions? Even better. 

Retirement accounts are good places to park your savings thanks to some of their tax benefits. Contributions to a 401(k) may help reduce your tax bill. And in certain cases, depending on the type of retirement account you have, you won’t be taxed on the money until you’re ready to withdraw it. If you don’t have access to a 401(k) plan through your employer or if you work for yourself, you might want to explore different types of retirement plans, such as an IRA. 

4. Automate your savings. Saving money can be easy if you don't have to think about doing it every month. If you know how much you can put toward your emergency fund, retirement, or general savings account on a regular basis, you may want to automate your savings (if this option is available through your bank). 

Take for example that emergency fund you’re building. You can open up a high-yield online savings account and set up recurring deposits through a linked account. The same can be done with your retirement savings. Decide what percentage of your pay you can afford to put aside and let your employer automatically deduct it from your paycheck. 

5. Assess and manage your debt. Whether you have student loans or credit card debts to pay off, some experts recommend you tackle the loans with the highest interest rates first because interest payments in these loans can really add up. The quicker you can pay off your debts, the sooner you can free up more money in your budget and put that extra cash toward something else, like a short-term savings goal or your retirement account.

Trying to decide whether you should prioritize saving or paying off debt can be challenging, especially if you have limited disposable income each month. But here are some helpful articles on how to prioritize and how to make a debt payment plan to get you on your way. 

6. Get educated on your investing and savings options. Of course, one way to get more money is to make money. But while you’re at work, your money doesn’t have to sit idly in a basic savings account earning crumbs of interest. There are many other savings and investing options that could help your money grow. 

As you work toward your financial goals as a young professional, take time to study up on some important financial topics. For example, do you know the difference between saving and investing? Or the potpourri of investment options that are out there, including stocks, bonds and ETFs? Or what about the different types of retirement plans? Financial literacy is key to successfully navigating your saving and investment strategy options.