A few months ago, my accountant Brittany shared her accounting tips for bloggers and small business owners. That content was super helpful, but many of you aren’t bloggers or small business owners, so I asked her if she could give us some insight into one of the scariest things about being an adult… saving. It’s scary for me anyway. I’m constantly wondering if I’m saving enough, or if I’m doing it the right way.

I have a strong belief that all college students should have to take a personal finance course before they graduate, but as for most people, that wasn’t the case for me. I felt as if I was thrown into adulthood blindly, and it took me three years before I realized that I even needed a savings account! After that, I became insane about saving, and because of it, was able to buy a house at a pretty young age.

That being said, Anel and I aren’t the most frugal of couples, so I’m always trying to learn a thing or two. Without further ado, I’ll let Brittany take it away.

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Hi Everyone! I’m so excited to be here again today sharing information about something that I’m even more passionate about than accounting: saving. Saving is incredibly important. I hate to say it, but if the thought of not having enough money in retirement doesn’t scare you, it should! Not to worry, though… These six tips will get you there in no time.

1: Harness the power of “compound interest”
Compound interest is basically the 8th Wonder of the World. But what is it? Well, we all know that savings earn interest. But “compound interest” means that your interest also earns interest. Compound interest is more powerful over a longer time, which is why it’s so important to save anything you can, as early as possible.

For example, take two cases of putting aside money every week until you’re 65. All things being equal, if you save $200 a week, starting at age 25, you will have $413,867 more in retirement than if you save $400 a week starting at age 35. In the world of compound interest, time is worth more than money.

I suggest Googling “Retirement Calculator and playing around with the numbers. You will be amazed at how much it matters to start saving as early as possible.

My favorite retirement calculator online is this one.

2: Start saving now
The most important thing you can do, then, is to start saving now to take advantage of that compound interest. I remember how I felt when I was young. Even though I was broke, I felt invincible: retirement seemed so far away and having an emergency fund didn’t even cross my mind. Plus, even if I wanted to save, I just didn’t feel like I could.

I was also scared to save, thinking I would be missing out on things in life if I put money aside. But the funny thing is, now I feel like I was missing out before I started saving. You know the feeling you get when you buy a new cute outfit, or splurge on that bag you really wanted? Saving makes me feel like that every day.

What we all need is a nudge. Mine came when a relative posted the “52-Week Challenge” on Facebook: you save $1 in week one, $2 in week two, etc., until you save $52 in the fifty-second week and end up with over $1,000 saved. I thought to myself, I can do that. It seems easy enough. The funny thing is, I never finished the challenge! But what it did for me was get me into the habit of saving and I haven’t looked back. So, think of a way to nudge yourself in the right direction.

My only regret is not beginning sooner . . . I missed out on several years of compound interest.

If you have a difficult time not dipping into your savings account, I suggest keeping your savings in a separate bank to limit the instant transfers between savings and checking.

3: Save for emergencies
You should have some money set aside in your savings account for emergencies, which should be “liquid” (meaning you can get to it fast). There are different schools of thought regarding how many months of living expenses people should have in their emergency fund – but if you have none, I would try to save up at least one month of expenses, with three months worth being my sweet spot.

Where to put your savings? Even though bank interest rates are pretty low these days, search the internet for a bank that offers the highest interest rates. BankRate.com is great for this. You can use either a regular savings/money market account or another low-risk mutual fund, but be prepared to lose money if the market dips.

4: Start a retirement account
So, you’ve decided you need to start saving, like yesterday, but when you go to open up a retirement account or sign-up for your job’s 401k, you have literally no idea what they’re talking about. No problem. Here’s what you need to know:

IRA (Individual Retirement Account): Open an IRA if you’re self-employed or if you don’t like your employer’s 401k. Look into the many different individual retirement accounts out there and even more for those who are self-employed with various pros and cons to them.

401k (Employer Retirement Account): If you have a job, and your company matches your contributions, I highly suggest opening a 401k retirement account through your company so you get double the savings. The only downside to opening up one through your job is that they can sometimes come with hefty administrative fees. Inquire about these fees and make sure they’re less than the match you’re receiving. Self-employed individuals can open a 401k as well, known as a Solo 401k.

The main difference between IRAs and 401ks is the amount of money you save, tax deferred, per year.

Once you’ve decided on an account, let’s talk about the difference between Traditional vs. Roth.

Traditional (pay tax later): With a traditional account, you get a tax deduction the year you invest, and pay tax after retirement, when you withdraw the money. This is to your advantage if you think you are in a higher tax bracket now than you will be after you retire.

Roth (pay tax now): With a Roth, you do not get a tax deduction the year you invest, but you pay no tax later when you withdraw the funds. This is to your advantage if you think you will be in a higher tax bracket after you retire than you are in now. Also, you will pay zero tax on all of that compound interest, your investments will grow tax free.

If you don’t know which tax bracket you will be in when you retire, invest half and half in both kinds of accounts.

5: Start an investment account
Once you’ve established your retirement account, it’s time to start an investment account. Personally, I think mutual funds from Vanguard are the best place to start. Mutual funds (1) tend to be safer investments (with smaller gains and losses) compared to trading stocks and (2) allow you to diversify your portfolio even if you’re working with a relatively small amount of money. I prefer buying shares of a mutual fund that tracks the S&P 500 (the top 500 stocks in the S&P Index).

6: Deal with debt
A lot of people think that if they have debt, they shouldn’t save. This is not always the case! I cannot stress this enough. There are different types of debt.

Pay off high-interest credit card debt immediately. High-interest credit card debt should definitely be paid down or moved to a 0% interest rate card. With credit cards, the interest rates are much higher than the interest you could earn through investing. Try to pay off your credit card debt immediately to avoid being charged the compound interest we discussed earlier. If you can’t afford to pay down all of the credit card debt immediately, do not wait to start saving until this is accomplished.

Pay down student loan debt monthly. Student loans, on the other hand, have low, fixed interest rates. You pay the same amount each month and that’s it. Pay off your student loans monthly, and don’t wait to start saving until your student loans are paid off.

Here’s a neat calculator I like to use that tells me what the best choice is between either paying off debt or investing the money instead.

Want to read more posts about money? Read my thoughts on money now that I’m in my 30’s, and my personal steps to regaining control over your finances.