Starting out on your own is one of the most critical times to start saving money. Unfortunately, many young professionals also find it is one of the most difficult times to save money due to the high costs of setting up a home. Fortunately, saving money as a young professional can be done with a few budgeting skills and a high yield savings account.
In order to save money, you have to know how much you’re spending. Start by tracking all of your spending for a month. In addition to knowing how much you spend on recurring expenses such as electricity and cable, it is also important to know how much you spend on variable expenses such as food and entertainment. Once you have reliable data for all of your expenses, you can create a budget.
To create a budget, start by listing out all of your sources of income. For most younger professionals this will only be your after tax income, but some people have second jobs or small businesses that should be included. From this total, subtract all mandatory expenses such as rent, utilities, minimum loan payments, and insurance premiums. In general, try to spend no more than 33% of your salary on housing, 10% on your total transportation costs, 7% on groceries and 15% on utilities. The remaining amount of money after these things are paid for is what can be spent on wants or savings.
Divide these remaining funds very carefully between wants, debt repayment, and savings. Ideally, try to set aside at least 10% of your paycheck for long term savings and 10% for short term savings in your initial budget. Use long term savings for retirement. Short term savings, however, should be used to pay for emergencies and other major purchases.
Short term savings should be kept in a safe, accessible investment that pays a good interest rate. Many young professionals have found that a good place to put their savings is a high interest online savings bank. In order to open online savings account, it is only necessary to sign up for an account online. These accounts typically pay higher interest rates than standard savings accounts, and the money you deposit is just as safe as money deposited in a brick and mortar bank. The funds are available for withdrawal at any time, making this an ideal place to put short term savings.
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