Getting out of debt is critical to healthy financial living, but it is not sufficient on its own. Once you are out of debt, it is important to start saving your money. It is especially important to begin saving money while you are young. Not only does this establish good habits, but that money can grow exponentially over the years because of interest.

While there are countless ways to set money aside for the future, I will focus on three big ways to ensure financial stability in both the short and long terms.

1. Personal Savings Account. While this is not the way to make the most money on interest, it is important to have money set aside that can be easily accessed in an emergency. It is recommended that you have enough money in a savings account to meet your basic living expenses for six months to a year. This includes such payments as housing, car, credit cards, utilities, and food. In an emergency, you can live off of much less money than you live off in a normal month, so keep that in mind as you calculate how much you should save.

2. 401K Plans. If your company has a 401K plan, you should be investing as much money as is allowed into that account each month. Often, your employer will match your contribution, or at least contribute part of what you do, so that is like free money! Also, the money you put into a 401K may be tax deductible so review your company’s handbook and see if you can start saving money today. As you invest in a 401K plan over years and years of employment, you will earn large amounts of money in interest.

3. Stocks & Mutual Funds. Stocks and mutual funds are a great way to invest your money and earn lots of interest over the years. Stocks are a good idea, especially if you are young and planning on investing for over 30 years because they tend to have the highest rate of return of investments and because you don’t have to worry about short-term setbacks when you are investing over a long period of time. If you don’t understand stocks, or are too scared to invest in them, choose a mutual fund, where fund managers choose the investments for you. Just be sure to pick a fund that is established and that you can trust. There are hundreds of options – look around until you find something you like.

Make a habit of saving while you are young and you will reap the benefits throughout your life and into retirement!

This entry was posted on Thursday, February 2nd, 2006 at 8:06 pm and is filed under Personal Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.