Saving For Your Future

Developing Savings Habits

In addition to saving for specific goals, get into the habit of regular saving for long-term goals and to build up your fund for unexpected expenses. Some simple habits will help.

  • Pay yourself first. If you wait until you're done spending to save, you won't save. Make saving one of your first priorities when you get paid.
  • Save unexpected income. If you get a windfall, such as graduation gifts or a tax refund, put it in savings. You're used to living without it, so you won't miss it.
  • Save regularly. Even if it's just a small amount, it will add up. As you begin to have more income, you'll already be in the habit of saving.

Benefits of Saving Early

Compare these examples of savers who saved $100 per month earning 3% interest, compounded annually, beginning at different ages and continuing to save until age 65:

Age started saving Amount invested Total value at age 65
25 $48,000 $92,837.46
35 $36,000 $58,419.37
45 $24,000 $32,912.28
55 $12,000 $14,009.08

Calculator Source: finaid.org

Setting Savings Goals

When you're saving for a specific goal, you can set your goal based on the amount you can save each month. Just divide the amount of your goal by the amount you can save each month, and see how long it will take to get there.

For example, your goal is to buy a new computer that costs $1,500.

  • If you think you can put aside $30 each month, you'll reach your goal in 50 months (or four years and two months). $1,500 divided by $30 = 50.
  • If you can save $100 each month, you'll reach your goal in 15 months (or one year and three months). $1,500 divided by $100 = 15.

Or, you can set a goal that's based on the amount of time until you need the money. Just divide the amount of your goal by the number of months until you'll need the money, and you'll see how much you have to save each month to reach your goal in time.

For example, if you're planning to buy a car in two years (24 months) and your goal is to save $2,000 for a down payment, you'll need to save $83.33 each month. ($2,000 divided by 24 = $83.33)

How do your savings add up?

Let's say you could set aside $30 each month in a savings account that earns 2% interest, compounded annually (note: These examples assume no withdrawals).

  • In one year you'll have $367.20
  • In three years you'll have $1,123.78
  • In five years, you'll have $1,910.92
  • In 10 years you'll have $4,020.74

Why $30? Because that's about $1 a day. Many people think of savings as an impossible goal. But if you start small - just giving up that extra trip to the vending machine every day - you can build up more than you might think.

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