10 Minutes with a Financial Planner

Savings Strategies for Young Americans

Plan your savings strategy with help from our financial planner.

Mari Adam, CFP®, President of Adam Financial Associates, Inc.

Saving money a little at a time can really add up. Just ask Mari Adam, a certified financial planner in Boca Raton, Fla.

“I started saving in an IRA (individual retirement account) when I was 23 and had started working,” says Adam. “It was a small amount, only $2,000 per year, but it grew into a pretty big sum over time.”

When you’re strapped for cash, it can be hard to find extra money to put away. But given the right savings vehicles and mindset, it’s doable—and it will pay off later.

“If you start saving young, you’ll be way ahead of the curve,” says Adam. “You can buy yourself some freedom, time off from work, or a down payment on a house when you’re a little older.”

On Your Own sat down with Adam to discuss her recommendations for saving while you’re just starting out.

Q: How do you save up for monthly bills so you’re not coming up short?

If you start saving young, you'll be way ahead of the curve.

A: The only way is to write down all your bills for the month (e.g., rent, car payment, gas, utilities, etc.) and set aside that money. Otherwise, there will be nothing left for savings at the end of the month. By taking out money for essentials first, your true “spending money,” for fun stuff, will be the only thing left.

Q: Where should you stash your cash for paying bills each month?

A: It makes the most sense to just keep it in your checking account and use it to pay your bills. You aren’t going to earn anything in interest to speak of, so the goal is just to minimize or eliminate all account fees. Look for a free checking account with free bill pay, and try to avoid any ATM or other monthly fees.

Q: How much money should you save in an emergency fund?

A: The old rule of thumb says six months’ salary. That would be great, but it’s hard to achieve for most younger workers. Start with one month, then build it to two, and try to hit three months.

Q: With an emergency fund, should you look for an account that doesn’t have stipulations or penalties on when you can pull out money?

A: Definitely. CDs (certificate of deposit) are not a good choice unless you can withdraw funds as needed.

Q: Where should you save money for a big goal such as buying a car or going on vacation?

A: Unfortunately, in today’s low-interest environment, there aren’t many good options for short-term (one to three year) savings—the returns are minimal. If it’s a short-term goal, try a savings account or online savings account to earn some interest. Stick a picture of your goal on your fridge or in some other visible place and keep track of your weekly or monthly target savings amount.

Q: Where should you save money for your retirement, even if it’s just a few dollars a month?

It sounds simplistic, but savings is simply income that you do not consume.

A: A good option here would be a Roth IRA, which is a fabulous account for younger adults. You still qualify for the Roth because your salary is probably low enough to fall below the income limits. You can always withdraw your contributions without penalty, and your money will grow tax-free for as long as you leave it in. Roths are great to do “double duty” as savings accounts and long-term retirement accounts.

Q: How do you stay on track with savings goals?

A: The key is to set your goals, and put them on autopilot (e.g., automatic monthly savings). And whatever you do, don’t dig yourself into a hole by piling up credit card or other debt. Also, it sounds simplistic, but savings is simply income that you do not consume. Consume too much, and there will be no savings left.

[Any reference to a specific company, commercial product, process, or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]