Save smart: 5 habits of young, successful savers
You’ve started your career. Paid down some debt. You’re a “real” adult now. (You know that because you bought a really great vacuum … now that’s adulting.)
Are you ready to take the next step and get serious about building your savings? Or are you wondering how to maximize the money you’ve already socked away? To fund your goals in life and retire when you’re ready, you want to feel financially secure.
We asked people who are in a good financial position early in their careers how they did it.
What we can learn from super savers
For the third year in a row, we conducted the Principal® Super Saver Survey to find out more about young people who are saving big for retirement.
Yes, super savers splurge
It’s not all work, no play. Super savers have fun, too, and this is what they splurge on.
- 46% Subscription entertainment services (Netflix, Hulu, satellite radio, etc.)
- 46% Travel
- 39% Dining out more than once or twice a week
- 30% Entertainment
- 26% Shopping
When super savers were asked what they’d suggest to Gen Z workers entering the workforce, they offered 5 financial tips.
1. Live within (or below) your means.
While you don’t need to eliminate all the fun, small changes can make a big difference over time. Start by creating a budget and find ways to live on what you make. How do super savers do it?
Sacrifices super savers make
- 43% Drive older vehicles
- 41% Own a modest home
- 41% Don’t travel as much as they’d prefer
- 40% Do DIY projects instead of hiring outside help
Super savers are making smart financial choices, but they aren’t sacrificing their quality of life.”
Jerry Patterson, senior vice president of retirement at Principal
“Super savers are making smart financial choices, but they aren’t sacrificing their quality of life,” says Jerry Patterson, senior vice president of retirement at Principal®. “We make time for the things we find most important, and this group has prioritized savings and financial independence in a big way.”
To learn more: Budgeting to help fund your financial goals
Tip: A young couple shares what they’re doing now so they can retire before age 50. Read their real money story about being part of the Financial Independence Retirement Early community (FIRE).
2. Be smart about debt.
To be more specific, super savers suggest paying off your credit card balance each month.
Find what works best for you. There can be a couple of good methods to pay down debt.
- Avalanche method (tackle high-interest balances first)
- Snowball method (pay off your smallest balance first)
Learn more: Managing debt: 3 ways to find the right balance
3. Plan for retirement.
Think about the life you want and make a plan to achieve the things you see in it. Among super savers, 71% say they started saving for retirement when they were in their mid-20s. They offer 3 ideas for saving.
- Save enough to receive the maximum employer match in your retirement plan. No sense leaving (free) money on the table.
- Save at least 10% of your pay in your 401(k) or 403(b) plan.
- Increase your retirement savings each year you receive a raise.
“One way to look at it is to treat saving for your future like another bill you pay each month,” says Heather Winston, an assistant director and CFP for Principal®. “Automatic withdrawals from your paycheck to your retirement account allow you to pay your future self, first.”
... treat saving for your future like another bill you pay each month.”
Heather Winston, assistant director and CFP at Principal
How do super savers know if they’re on track for their retirement goals?
- 65% use online tools to verify that they’re meeting their goals
- 27% compare their numbers to the information available from their financial professional
4. Set up an emergency fund.
Super savers typically put most of their money toward improving their financial situation. That includes an emergency fund: 96% of super savers have one, and about 2/3 of them have 4 or more months of living expenses stashed away.
“Would a $500 expense throw off your budget in a big way? If the answer is yes, it’s a good idea to set up an emergency fund,” Winston says. “That way, the unexpected doesn’t derail your long-term plans.”
5. Keep learning about personal finance.
Super savers generally try to continue to learn a little more about personal finance and retirement.
“Education drives confidence, and confidence drives action,” Patterson says. “Even investing a small amount of time learning more about personal finance can have a huge boost to confidence in financial decision making.”
What to do next?
Dream of retiring early? The FIRE movement is hot among millennials. Take our 5-question quiz to see how your saving and spending habits stack up.