For example, you may say, “You should have some money put aside for emergencies. This will make life less stressful for you and ensure you have financial support when you need it. " Having a “rainy day fund” where you save money in the event of an emergency can also come in handy if you have a family issue or problem that you need to address in the future. If a family member becomes gravely ill, for example, and you would like to spend time with them, having money set aside will ensure you can take time off work to do this. A “rainy day fund” will also come in handy if you need to pay for an expensive medical procedure or operation due to an accident that is not covered by your insurance company. You should remind the person that having some money to fall back on can allow them to be independent and self-sufficient, even in the event of an emergency.
Saving for retirement from a young age allows you to take advantage of the benefits of compound interest on your savings and/or investments. Compound interest allows your investments to increase at an increasing rate over time, as interest is earned on both the original amount and the interest earned to that point. For example, if you deposit $300 per month into an account earning an average of 8 percent per year for 40 years, you will have contributed $144,000 but the account balance will be over $1,000,000. [3] X Research source Some jobs will offer a retirement savings plan as part of their benefits for employees, which means employees can put a portion of their paycheck towards a 401K or a retirement pension fund. You should ask the person to consider contributing to their company’s retirement plan, if possible, to save money later. Some employers may even match contributions to retirement plans, essentially offering the employee free retirement money. Retirement plan contributions to some accounts, including traditional IRAs and 401(k)s, may be tax-deductible.
Saving is especially important if the person does not enjoy their current job and has future career plans. They may need to pay to go back to school or to get training in a certain field. Having savings will ensure they are able to do this to better themselves and achieve their career goals. [4] X Research source You may get the person thinking about how money can affect their career goals by asking them, “Are you happy at your current job?” or “Do you have plans to work in another job or field in the future?” If they tell you they may want a career change at some point, you should remind them this will cost money to achieve.
You should also ask, “What are your long term financial goals?” These goals are all about how they want to spend their money in the future. This could be having enough money for retirement one day or putting money in a travel fund for a future trip. Financial goals should be expressed in specific dollar amounts with schedules. For example, retirement may be 30 years away, buying a house may be in 3 years, and buying a car may be in 9 months. Figure out how much is needed for each goal so that specific savings schedules can be created.
Start with their monthly income. This could be a salary, paychecks, any bonus income, and any child support or alimony payments. Then, have them calculate their total monthly expenses. You can then create the final budget together. You should sit down with the person and work on their budget with them. You should show them how to determine their income and their expenses. You should also help them calculate how much money they can save every month if they change their spending habits. This will allow them to see how saving money can benefit them in the long run. [9] X Research source You may decide to use a spreadsheet to create the budget using a computer program. This may make it easier for the person to add and subtract expenses from the budget as necessary. You could also show the person how to use budgeting Apps, where they can use an App on their smartphone to keep track of their budget.
You should show them how to shop for money-saving deals online and in stores. You may also show them how to use coupons and look up promo codes for certain retailers. You may also recommend that they sign up for email notifications from their favorite retailers about deals and special prices. You should recommend that they go shopping for certain items on special deal days like Black Friday so they get a good price on an item and save money that they can then put towards other expenses. You can also teach them how to save their money day to day so they are not going over budget or over spending all the time. Try to teach the person the value of being thrifty and money conscious so they do not waste their hard earned dollars. You may have them identify where they are spending too much money on a daily basis and then brainstorm ways to spend less. [11] X Research source For example, maybe they could be bring their own lunch to work instead of going out all the time to eat. Or they could prepare their own coffee at home so they do not have to go to Starbuck’s every day. They could also save money on transportation by taking public transit or biking instead of driving every day. Doing this could help them save money on gas and parking.
You may recommend that they go for a savings account at their bank that gives them benefits for having a balance in their savings account. For example, they could set up a savings account, where they earn interest on the balance in their account.
Educate them about possibilities for saving more easily, like taking payroll deductions that are automatically placed into savings or paying off their credit card in full each month. For example, you may say, “Investing your money now means you will have more money for retirement later. You should speak to a financial advisor and find out how you can invest your money smartly. "
