Spending and Saving Your Hard Earned Money
When you’ve just graduated and you’re looking toward the future, it’s difficult to think about saving for a rainy day, much less retirement. But as you move through your career, it’s important to save for all of life’s exciting events (and those occasional tough times) that await you down the road. Remember, saving is not always about how much you save—it’s simply the fact that you do save and allow your money to grow over time.
Many people have the opportunity to save through employer-sponsored retirement plans—often in the form of a pension, a 401(k) plan or something else. The 401(k) plan is widely offered by private corporations. Similar retirement plans are offered by nonprofit employers (403(b) plans) and government employers (457 plans). Because the money you contribute in these types of plans most likely comes out of your gross income (meaning, your salary before it is taxed), all of these plans offer employees incentives for tax-deferred savings. In other words, you don’t pay tax on the money you put aside in these plans until you withdraw it.
How much should I be saving?
A good rule of thumb is to try to save 10 percent of your gross income (pre-tax). Whether you do that with a combination of savings plans (401(k) plan, bank savings account, piggy bank on your dresser, etc), or all in one place, always work toward the magical 10 percent. But, if you can only save 3 percent now, then save that 3 percent and work your way towards 10 percent. When you start saving at a young age, it becomes part of your routine, and it has longer to add up and grow.