5 Ways the Cut Inflation Act Could Save You Money
Next is the part where my husband and I guide them on what to do with their real money. And by saying “true,” we older people don’t mean disrespect. But it becomes real when your paycheck is split for the expenses your parents used to pay.
Our children know how to save and spend well. Their money management training started as soon as they could talk and started asking for things.
However, our financial education is not finished. I figured after 25 years of their mom writing a personal finance column and being dragged into financial workshops that they wouldn’t need much more advice once they started working full time.
Gen Z thinks “the money will come back”. Is that okay?
Practice is always harder than theory.
So here are five things to do with your money when you get your first full-time job.
Automate your savings immediately
You are in the league of big savers now. You’re not saving for short-term goals, like an outfit or a concert.
Your roommate might move out unexpectedly, leaving you to cover all the rent. There’s going to be a $1,500 car repair. In future years, maybe a down payment for a house. Maybe you want to start a small business.
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Choose to dedicate a specific percentage of your salary to savings each pay period.
Yes, every paycheck.
The best way to make sure you’re not tempted to take a paycheck out of your savings is to ask your employer to direct a portion of your paycheck to a dedicated savings account or multiple accounts.
Right now, it’s more about establishing a habit of saving for life than how much you save. Pushes you. Start by saving a regular amount of dollars or a percentage of each paycheck – 3-5%.
If you don’t develop a saving habit now, it will be harder to practice later when your paychecks increase. More money, more temptation to live beyond your means.
Create different accounts for your money
No, not this jar. (I get high saving.)
I like having different pots. It helps me compartmentalize my savings goals. It also prevents me from tapping into a designated pot for something I don’t need.
My salary is automatically paid into three bank accounts – a checking account from which I pay for household expenses, an emergency fund set up at a credit union (in case I lose my job) and a “life happens” fund. to cover such unforeseen expenses as a major car repair.
As an alternative, you can do what my teacher daughter does. She set up an automatic transfer from her main checking account to a savings account at another bank. She says she wants to see all the money before it goes to her various jars.
I only have an ATM card for the household account.
With the advent of payment apps, it is now easy to circumvent the ATM strategy. So if you load your financial institutions’ apps onto your mobile device, use discipline to avoid taking money out of your savings accounts on a whim. Do not connect any payment apps to your savings jars.
Start saving for your retirement right away
Want to become a 401(k) millionaire?
Aim to contribute at least 15% of your gross income to your retirement plan as soon as possible, a percentage recommended by Fidelity Investments, one of the largest workplace plan managers. The 15% can include a combination of what you invest and a matching contribution from your employer.
If you can’t contribute that much, start with 3-5% and then increase your contribution as you get a raise or bonus.
What you need to know about setting up a 401(k) on your first job
If your first employer doesn’t offer a 401(k) or similar plan, you can still save for your retirement through a traditional IRA or a Roth IRA. Instead of creating an account through your employer, you will need to contact a financial company and open a retirement account. For 2022, the annual IRA contribution limit is $6,000.
One last thing, don’t cash out your retirement account when you change jobs. If you like the investment options from your old job, let the money be. If not, you may be able to transfer the money to your new employer or to a rollover IRA.
Millennials are accumulating retirement savings in Roth IRAs
If you’re graduating from college with debt, make it a priority. If you have credit card debt, it’s even more important to get rid of it now because of rising interest rates.
Use your 20s to free yourself from debt that gets more expensive the longer it lasts.
Focusing on debt could mean less money available to save for retirement. Its good. You still have decades to catch up. The caveat is that if your employer offers a match for your retirement savings, put in enough to get the match. Then, focus the rest of your extra funds after expenses on debt repayment.
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Don’t spend what you don’t have to
Keep the cluttered car you drove.
You don’t have to dress up to impress. One thing we’ve learned from the pandemic is that your work clothes don’t define you or your success.
In the United States, financial independence is considered unattainable without living alone, even if it means being crushed by exorbitant housing and living expenses. You don’t fail as an adult if you can live at home. This is an opportunity to build up a savings cushion or reduce your debt.
With higher inflation, living with your parents makes economic sense
Adult children can also save on health insurance premiums by staying on their parent’s plan, assuming the parent is willing and can afford to retain coverage for dependent children.
Generally, under the Affordable Care Act, you can stay on your parents’ plan until you turn 26, even if your employer provides coverage.
But make sure you have access to the same provider network if you don’t live in the same area as your parents.
Do all of these things now and you will position yourself for true prosperity.