Spending all your money when you get a paycheck might seem like a lot of fun, but in the long run, it will come back to bite you. When the day comes that you cut your spending back and give yourself some breathing room with your money, the results will show quickly. It’s not secret that investing is one of the best ways to slowly grow your wealth over time. The question is then – how much should young professionals be setting aside for investments?

There are no hard-and-fast rules for how much to set aside for savings and investing, but some general rules of thumb are appropriate. For more detailed guidelines, it would be a good idea to sit down with James Eakin, Financial Representative with Northwestern Mutual. Chatting with financial advisors or friends/colleagues that are financially savvy is never a bad idea. Until then, here are some ideas to help you get started saving and investing!

Build a Nest Egg

It should go without saying, but anyone who plans to save and invest their money needs to start with something. That “something” will come, of course, from your paycheck. It’s from this point that things can get a little easier said than done.

Some financial experts advise that people save 10% of their income. Others say it should be more like 15% or 20%. The exact amount really doesn’t matter much. What matters is that the money is saved and put aside until a cushion is built.

What does YMF do? I aim to save about 30% of my paycheck. That 30% is broken up into retirement, Employee Stock Purchase Program and general savings. I certainly didn’t start out like that, but worked to increase my savings rate over time!

Buying Your Way to Broke

The hardest part of personal finance is learning to say ‘no’ to and having self control to control your spending. Of course the occasional splurge won’t hurt but bigger ticket items can really throw you off your plan. There are certain circumstances where purchasing these kinds of items can’t be avoided, but always keep yourself from buying them just because they are on sale. “I bought it because it was 20 percent off” doesn’t hold water in the real world.

Saving for a new car or appliance is fine, but try to keep a purchase of this type separate from what you are saving for investing. A good way to save for this type of item is to determine what it would cost and what you feel like you could save each month to have enough to buy it. Plan it out!

Balancing the Budget

There are many rules of thumb that can be observed to save money for investing. It’s important to remember they are just that: rules of thumb. What matters most is your judgment and what you are comfortable with.

The more you save, the better off you will be in the long run, but the most important thing is that you can live with what you have created. It’s no fun, for example, to save so much of your income that you are forced to live with cardboard boxes as furniture. What matters most is that you create a balance in your financial life and learn to live with it.

Retirement

There comes a time in everyone’s life when the thought of retirement and preparing for it comes up. After all, nobody wants to work forever. When that time does come up, it’s a good idea to have a good conversation with someone who can help you plan for it.

Many financial advisors tell their clients that they should save an additional five percent on top of their savings for retirement. Again, the more the better. If the company you work for has a retirement plan (typically a 401k), invest in it. Try to contribute the max, especially if the company matches your contribution. Even if it’s not a lot, it will all add up to a more comfortable retirement in the end.

What does YMF do? I save 15% for retirement. That’s always the number that I’ve heard and one I’ve worked towards. Now part of the 15% comes from my employers match but it still is 15%

Summary

If you want to grow your wealth over time, it’s important that you both save and invest your money. Save/invest an amount you’re comfortable with and one that doesn’t break your budget. Spend your savings wisely on larger ticket items that you’ve planned for and researched thoroughly and don’t forget about retirement!

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