Save early and often

Making the decision to save is the first step. Now you have to consider three important things that can affect your success:

• The amount you save
• The time you have to save
• Your rate of return

While you can strive for a certain rate of return, there are no guarantees. So it’s best to focus on the first two, where you have the most control.

How much is enough?

Whether you’re working toward a short-term goal or putting your efforts toward that all-important goal of saving for retirement, time plus the amount you save work hand in hand.

Here’s why: The sooner you start saving, the smaller percentage of your income you need to save. Conversely, the longer you wait, the larger amount of your salary you’re going to have to put away each year to reach your goal.

Start with 10 percent—and go up from there.

In general, saving 10 percent of your income is a good guideline for getting started, especially for young people. However, the later you begin to save, the more you should set aside. Learn more about how much to save for retirement and find out how you can meet your goal.

Don’t waste a minute.

When it comes to saving, time is your greatest ally. It just makes sense: the earlier you start saving, the more time you have to make your savings grow.

Consider this example:

Let’s say that 2 sisters, Mary and Sue, each have an extra $3000 a year. Mary decides to start saving that money immediately and invests $3000 a year for 10 years, putting aside a total of $30,000. At that point, Mary stops saving but leaves her money to grow for the future. And that is when Sue starts saving. Like Mary, she saves $3000 a year. However, instead of saving for just 10 years, she saves for 30 years. At retirement, Sue has put away a total of $90,000.

For the sake of illustration, let’s assume that each sister made a consistent annual interest rate of 8 percent. As you can see in the chart, Mary, who saved much less than Sue, ends up with $472,306 compared with Sue’s $367,038. What made the difference? The power of time and compound interest.

Find out what it will take to reach your goals.

No matter what you’re saving for—a car, a vacation, a down payment for a house, or even retirement—our savings calculator will help you determine what it will take, and how long it will take you to reach your goals.

Think of saving as paying yourself first. And consider setting up an automatic deposit to a savings account each month, so you won’t be tempted to shortchange yourself when you’re juggling bills and paying off debts.