What Age Should I Start Saving Money?

    So what age is the right age to start saving money for your future? The practical answer is any age when you start to work and earn money for yourself, whether it’s being paid for chores at age 5 or entering the workforce after law school at age 25. Saving money is a wise financial practice at any age.

    But to get to the bottom of this question, take a moment to explore your motivations and your personal financial situation in depth. Honest answers may give you the push you need to get started on your savings goal right away.

    Before you decide when to start saving money, the first decision to make is on a set of goals. Are they short-term, such as some new shoes or your next vacation? Or is it longer, like saving for your next car? Or is the goal even loftier, like the down payment on your first house?

    A short-term savings goal is usually something that you wish to accomplish within six to 12 months. A long-term goal is generally one that will take five years or more to achieve, like building up a retirement fund to support you and your family.

    If you have a short-term goal, the age to start saving money is right now. One key short-term goal to plan for is the need for an emergency fund. According to Bankrate, your emergency fund should equal three to six months of bills. CNN Money suggests that you start saving for long-term retirement goals in your 20s, as soon as you leave school.

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    How Much Discretionary Income Do You Have?

    Discretionary income is the first factor to consider when deciding when to start a serious savings plan. Also known as disposable income, discretionary income is the amount of money you have left over after you pay your mortgage or lease, your car loan, taxes, bills and other necessary living expenses.

    The smaller your discretionary income, the sooner experts advise to start saving to reach your short- and long-term goals.

    But if you’re at an age where you have a consistently large discretionary income, there’s a strong temptation to use the extra money to upgrade your lifestyle. In reality, this is actually an ideal time to start saving aggressively for the future – and in case of any financial challenges down the line.

    How Much Do You Need?

    Once you have a clear idea of your goals and the amount of income you have available to save, the next consideration is the dollar amount needed to achieve your savings goal. If you’re purchasing a car or home, you’ll need about 10 to 20 percent of the purchase price for a down payment.

    If you’re saving for a college fund for one or more children, the target dollar amount should be the estimated tuition when your child reaches college age. Most 529 savings funds take tuition inflation rates into account and help you estimate the total cost. They also offer prepaid tuition options.

    For retirement, you’ll need to identify your target replacement income (TRI). This is the percent of your current income you’ll need to live on after you leave work.

    Bankrate advises that you multiply this percentage by 30 percent to calculate how much you need to save. For instance, if you need 80 percent replacement income you should save 24 percent of your annual income on retirement (80 percent times 30 percent).

    If you’re not able to meet the suggested savings minimums to achieve your goals in the timeline you’ve set, review your budget to make cuts wherever possible. Consider taking on additional work in the short term if necessary.

    Where Should I Keep My Savings?

    Susan Ladika of MoneyRates.com advises that where you put your savings also depends on your goals. If you’re saving for a short-term goal like buying a car or a vacation, a traditional savings or certificate of deposit (CD) account is fine.

    If you’re saving for a non-retirement goal that occurs over five years into the future consider a savings bond, which are generally safe and have a better rate compared to bank savings accounts.

    For retirement, research mutual funds, Roth IRAs, 401ks and other profit-sharing plans through your employer.

    The movement of interest rates should also factor into your decision about what age is best to begin saving. If you’re in a financial climate where interest yields are higher than usual that is a significant motivating factor to start putting more money away.

    Saving Younger is Better

    Financial advisers guide parents to teach their kids the habit of saving money. In fact, a 2011 survey released by Ameritrade Holding Corp. revealed that younger workers in their 20s save even more rigorously than their parents do—use that as a motivating factor for yourself and also keep the trend going strong in your household.

    If you have young children in your life, get them started saving as soon as possible. Move them from the piggy bank onto a custodial bank account, and guide them in their financial journey into a responsible adulthood.

    Janet Bodnar of Kiplinger Personal Finance also suggests that you match their savings as a way to motivate them. The bottom line: There’s no such thing as too young to plan for your financial future.

    Bill Fay

    Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

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