They’re young, they’re rich and they have money to burn – trust fund babies like Peaches Geldof and Nicole Richie make us wish we could spend our days shopping and lunching. But you don’t need rich parents to have a trust fund. If you’re young and employed, you are in the best position of all to start building your own pile of cash. Here is how to start saving your money so you can start living the life sooner rather than later.
If you’re in your 20s, you might not be thinking about saving your money. But the earlier you start putting cash aside, the better. It’s all about compound interest. Here’s how it works: Anna starts saving at age 20 and invests $1000 a year until the age of 30 (10 years). Julia starts saving at 30 and puts $1000 a year aside for 25 years. Both save at a 6% interest rate. Who has more money in the end? Anna has $56,571 and Julia has $53,865 even though she has put much more money aside. The big message here: start saving early.
Live below your means
If you keep spending more than you earn, there won’t be any room for savings — in fact, you’ll fall into the debt trap before you know it. If you spend less than you earn, you can put aside the extra cash for savings.
Pay yourself first
Every month, put as much money as you possibly can into your savings. The more money you earn, the more you should be saving.
Understand your taxes
Sure, Peaches and Nicole probably don’t worry about taxes. But a big part of your financial plan should be saving and investing to lower your tax bill — use all of your registered retirement savings plan (RRSP) deduction limit every year so that you make the most of the tax benefit.
Choose your investments wisely: diversify
Put some money in a savings account, invest some in higher earning investments like stocks, and consider buying a home. Real estate is a great way to build wealth over time — it’s also forced savings because you are constantly building your equity.