Saving for retirement can feel like a bit of a faraway abstraction in your 20s. (Hey, it wasn’t so long ago—Last year? Last month?—that paying extra for guac felt extravagant.) But here’s the thing: Even nickels and dimes add up, especially when they sit in investment accounts for decades, snowballing and accruing interest.
With that in mind, here are some expert insights on how to save the most, even if you’re at the point in your career when you’re earning the least.
Save before you spend.
Just as daily sunscreen in your 20s staves off wrinkles in your 50s and 60s, a steady commitment to socking away whatever you can no matter what you currently make will literally pay off. Saving should be the first thing—not the last thing—you do with your money, says Paco De Leon, author of Finance for the People: Getting a Grip on Your Finances. “Instead of trying to save and invest what’s left over after you spend, think about saving and investing as something you do first,” she says. “Then you can spend what’s left over. Try to think of investing and saving as regular paycheck deductions, like the taxes you pay. This is one way to make savings and investing non-negotiable. In your 20s, you might not be able to invest 30% of your paycheck. That’s OK; just start where you are, even if it’s only 1%. The important thing is to make it a habit and realize that you’ll increase your contributions over time, as your pay increases. When you get windfalls from tax returns or bonuses, spend some of it but always save or invest some of it. If you’re saving and investing a portion of every dollar you earn, you make it into a habit.”
Put your savings to work.
“In your 20s, the goal is to plant the right financial seeds,” says Zaneilia Harris, of Harris & Harris Wealth Management in the D.C. area and author of Finance ’n Stilettos. In order for seeds of your savings to thrive, you’ll need to “plant” them in retirement-specific account. (Leaving retirement savings in a plain old savings or checking account is the equivalent of planting an actual seed in a sidewalk crack.) “Start with setting aside funds in a Roth IRA, especially if your employer doesn’t offer a retirement plan. Why? The funds grow tax-free and once you meet the IRS requirements can be withdrawn tax-free.”
Tap into your company’s resources.
If your employer offers a 401(K) plan, sign up, stat. In many cases, if you commit to contributing part of your paycheck to a retirement account, the company will chip in for your savings, too. But the money isn’t the only valuable thing on offer. “These plans typically come with a ton of educational resources to help you break down any unfamiliar terms and jargon you may encounter as you’re getting set up,” says financial expert Stefanie O’Connell-Rodriguez, author of The Broke and Beautiful Life and founder of Statement. There are probably humans who can help with your financial planning as you’re sorting out how to save for retirement, too. “Don’t be afraid to lean on your HR rep to ask whatever questions come up along the way.”
Don’t neglect your debt.
If you’re paying off student loan debt, chances are you feel the bite: The median payment for borrowers is $222, according to stats from the Federal Reserve, which can feel like a lot when you’re just starting out. But if you can pay more, you’d be wise to do so: The sooner you pay off debt from your past, the sooner you’ll be able to put more of your money toward your future. If your repayment is automated, Bola Sokunbi, author of the Clever Girl Finance books, suggests adding whatever extra you can to your monthly payments. “You can put in another $100 a month, another $50 a month,” she says. “Just always be sure that you specify you want the extra to go toward paying down the principal.” (That means your extra money is paying off the loan itself, not going toward interest that’s accrued on top of it.)
