Eating birthday cake and spending money is easy. Actually growing older and saving it is, unfortunately, much harder.
Looking at your finances through a long-term lens isn't always fun, but putting money away can make you feel better about the future. In a survey Money recently did with Synchrony Bank, 91% of consumers said the ability to save gave them a sense of control over their finances — something you may be lacking if you're nervously approaching a milestone age.
“Think of it as paying your future self, setting your future self up to be empowered,” says Michaela McDonald, a CFP with the personal finance app Albert. “That is going to totally elevate the way you think about yourself financially.”
It's common advice for everyone to have an emergency fund, and it does feel nice to have a safety net of sorts just in case everything goes belly up. McDonald says once you have that foundation, you can truly start considering what you want to do next, whether that’s buy a new iPhone or travel to Italy.
So, say you're rounding out your 20s and attempting to plan ahead. How much money should you have saved by age 30?
Well, there’s a rule of thumb that people should have the equivalent of their annual salary put away by the time they reach their 30s. But that financial goal is not necessarily ideal for everyone.
Ethan Bloch, founder and CEO of Digit, says he doesn’t even really like the phrase “financial goal.” He says it perpetuates the idea that if you hit a certain number, you’re a success (and if you don’t, you’re a failure).
“The idea of ‘how much should I have saved by the time I’m 30’ is actually the wrong question. What actually matters is what career path are you on and what really matters to you,” Bloch says. “The exercise of thinking through where you want to go is much more important than saying, ‘Oh, I have this very concrete financial goal.’”
Bloch recommends checking in with yourself about what you'd like to see happen in your life. Are you in a relationship? Do you want to have kids? Where do you want to live? What’s your dream job? Once you get some clarity on those, then you can set basic directional goals and use your money to help generally move you forward — not toward a hit-it-or-else target.
He suggests looking at a three-year horizon to get a sense of the liquidity you need and how to pay down the debts you have. Then you can determine how to allocate your income.
On that note, McDonald points out that your savings shouldn’t all be in the same place. You can have my emergency fund in a high-yield savings account, investments via a brokerage account, some retirement savings in an IRA, and so on. That way you're diversifying your accounts and looking ahead.
“Think about the structure of it,” she says. “Breaking it up across those accounts after you've built that plan for yourself is going to be really helpful in setting yourself up for success.”
Another key part of that is automation. McDonald said apps and services that let you set it and forget it are definitely the way to go, because you don’t have to constantly think about saving. Both Albert and Digit can analyze your income and automatically save for you.
Out of sight, out of mind, in your wallet.
Bottom line: The standard advice is to have your annual salary saved by the time you turn 30 — but the standard advice doesn’t always apply. Instead, you should review what you're hoping to achieve in the next couple of years and figure out how you can move in the right direction. Then, once you're ready to actually put money away, you should take advantage of an automated savings service.
Think in terms of quality, not quantity.
“Get some sense of what’s important to you,” Bloch says. “There’s no cookie-cutter financial goal.”