LITTLE ROCK — Even on a first-job salary, one is never too young to save, said Laura Connerly, assistant professor for the University of Arkansas System Division of Agriculture.
“Young adults may be tempted to spend income on buying new furniture or owning the car of their dreams,” she said. “However, there are important reasons why young adults should make saving money a priority.”
Connerly says there are three important reasons for young adults to save:
• Build wealth and avoid debt. On average, young adults carry $14,020 in debt, excluding mortgages. Only one-third pay off their entire credit card balance each month. Eliminating debt allows money to be put toward saving and investing. Investing builds wealth.
• Make the most of compound interest. Compound interest is the interest you earn on interest. If you have $100 and it earns 5 percent interest each year, you’ll have $105 at the end of the first year. At the end of the second year, you’ll have $110.25. Not only did you earn 5 percent on the $100 you initially deposited but you also earned 5 percent on the $5 in interest. “Young adults have a great advantage in building wealth — time and the magic of compounding are on your side,” she said.
• Emergencies can happen at any age. Aim to build an emergency savings fund with at least enough money to cover two months of living expenses. Start with a goal of saving $1,000. Young adults tend to think “that won’t happen to me.” “If your car breaks down, you can use your emergency savings for the repair instead of using your credit card,” Connerly said. “If you lose your job, you’ll have enough money to survive for a couple of months while you job hunt. An emergency fund helps keep you financially stable during times of crisis.”
For more information about managing your finances visit www.arfamilies.org/money.htm or contact your county extension agent.