“Save three to six months’ worth of expenses for emergencies.”
“Never put less than a 20% down payment on a house.”
“Make sure you have at least $1 million saved to retire.”
Americans are inundated with well-meaning financial advice that’s easier said than done. The trouble is, when the benchmark for success is so high, it can feel especially challenging or even pointless to start climbing toward it.
But as the saying goes, every great journey starts with a single step. And when it comes to money, the little moves forward do add up over time. That’s why it’s often important to start as soon as you can. Even if you’re starting small.
“The first step to building wealth is to start creating strong habits to stay consistent with your saving and investing plans,” Chelsea Ransom-Cooper, a CFP with Zenith Wealth Partners in New Jersey, tells CNBC Make It.
Here are three of those habits you can start right away that can put you on a path toward building wealth.
1. Tracking your spending
“While saving or investing $5 a month can pay off over time, unchecked spending can easily cause all the progress made by saving bit-by-bit to go kaput,” Billy Hatton, a certified financial planner based in Los Angeles, tells CNBC Make It. “If you don’t know how much you can afford, you may bite off more than you can chew and still be stuck with the bill.”
You don’t need to track every single dollar you spend or make major cuts to your discretionary spending to get started. In fact, doing the latter may actually be counterproductive, given that many financial experts say restrictive budgets don’t work.
Nevertheless, to make your money work for you, you need a basic understanding of what you’re spending it on.
“Budgeting doesn’t have to be a massive endeavor you take on all at once,” Nathan Mueller, a CFP based in Colorado says. “Start small [by] tracking just a few key areas: food, entertainment, gas, and clothes.”
2. Keeping an emergency fund
If there’s one guarantee in life when it comes to money, it’s that you’ll encounter financial surprises — likely several over the course of a lifetime.
Sometimes they’re relatively small, like getting a flat tire. Others, like losing your job, have the potential to drastically change your financial picture.
To prepare for unexpected expenses big and small, start setting aside emergency savings. You may not have enough cash on hand to get you through your next rainy day, but money experts agree something is better than nothing. After all, in the case of a financial emergency, any cash you have stashed away is money you don’t need to withdraw from retirement accounts or put on a credit card.
“While the conventional wisdom endorses three to six months of living expenses, I persistently advocate that any amount is superior to none,” Will Kellar, a CFP, partner and lead advisor at Human Investing, recently told CNBC Make It.
3. Investing for the future
It’s a common misconception that you need to already be rich to make money through investing. As with your emergency fund, having even a little bit of money invested wisely in the stock market can help you in the long run. Time invested in the market is almost as valuable as the amount of money you’re putting in, so it’s a good idea to start as soon as you can.
It’s true the larger your initial investment, the bigger your gains will be when they start coming. But small, consistent contributions can grow into large sums over time when you invest versus just saving the cash, thanks to the power of compound interest.
For example, if a 27-year-old put just $20 a month aside and saved it in cash, they’d have $9,600 at age 67. But if they invested that $20 a month instead, their balance would grow to $70,771 over the same amount of time, assuming an 8% annualized return.
“It is worth it to start investing a small amount like $5 or $20 a month, because you are building a habit,” says Ransom-Cooper.
Like any habit, investing regularly takes some time and repetition to really stick, so even if it’s a small amount, getting in that routine is a good place to start.
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