Financial Literacy for Everyone
Follow Us
For Editors

Run Nathaniel Sillins's weekly Practical Money Matters in your online or print publication. Subscribe today

For a photo or bio of Nathaniel Sillin, see our press kit.

For Broadcasters

Learn how you can play our weekly Practical Money Matters on your station. Learn more

Play NFL

Challenge yourself with Financial Football
Play our fun video game to test your knowledge about money.
Play now

PMM articles

Practical Money Matters
Disputing a credit card charge? Graduating? Leasing a car? Learn important tips from our weekly article series.
Read now

social media

Connect with us!
For daily money tips, quips and pics, follow us on social media.
Like us on Facebook
Follow us on Twitter

Early savings reap long-term payoff

By Jason Alderman

I lived paycheck to paycheck during my early twenties. Saving didn't seem feasible there were just too many expenses. And, like many, during my early workforce years I neglected to have a portion of my paycheck automatically put into a retirement account.

It's ironic that when you're young and struggling you can make the biggest impact on your financial future. Now, quite a few years later, my 401(k) is finally in decent shape and I'm onto the next hurdle – saving for my kids' college education.

Here are a few ideas to help get you or your children on the right track:

The power of compounding. At 22, you're twice as far from age 65 as from birth, so it's hard to think seriously about retirement. But compound earnings – where interest earned on your savings in turn generates more earning – can snowball over time. Here's an example:

Say you're 22, earn $30,000 a year and put aside 6 percent of pay ($150 a month) until age 65. At an 8 percent average annual rate of return, your $77,400 investment will grow to $619,000 by then. But if you don't begin saving until 32 and set aside the same monthly amount, you'll only accumulate $274,000 by 65 – a huge difference. By increasing the percentage of pay you save and factoring in annual raises, your savings will skyrocket even further.

Be tax smart. If you don't participate in your employer's 401(k) plan, you're missing a great savings opportunity. Money is deducted from your paycheck before being taxed, which lowers your taxable income and thus, your taxes. You aren't taxed until withdrawal at retirement, when your taxable income and tax rate may be much lower.

Many companies match a portion of your contributions as an incentive to save commonly 50 percent of your first 3 percent of pay saved, or better. That's like getting a 50 percent rate of return. Be sure to contribute enough to take full advantage of the match; otherwise, you're throwing away a sizeable gift. Practical Money Skills for Life, a free personal financial management site sponsored by Visa Inc., has a complete guide to 401(k) plans and other employer-provided benefits (

If a 401(k) plan isn't available, try a Roth IRA. Although initial contributions are taxed, you'll never pay taxes on the earnings, which will grow rapidly with compounding. The earlier you contribute to a Roth, the bigger your tax savings. As always, consult a financial professional regarding your personal situation.

Trouble saving? Start small. Put leftover change in a jar each night and skip a few lattes. Every few weeks, deposit the money in a high-yield, money market savings account (find the best ones at You'll be surprised how quickly it accumulates. Whenever you get a raise or bonus, bank at least part – or better yet, increase your 401(k) contribution.

Saving is never easy, but if you establish good habits early on, you'll find the long-term rewards are too good to pass up.

Jason Alderman directs Visa Inc.'s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to

This article is intended to provide general information and should not be considered tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how tax laws apply to your situation and about your individual financial situation.

<< Back to Practical Money Matters

Email to a friend

Your Name:
Your Email:
Recipient's Email:
Enter code:

The information that you provide through this e-mail feature will not be stored by Visa for any other purposes. Please refer to Visa's privacy policy for details.