Unlocking Financial Freedom: A Beginner's Guide to Saving and Investing

Aug 15 / Jay Zigmont, PHD, MBA, CFP®

Saving and investing your money are two major parts of personal finance 101, and it's natural to wonder how to approach them. Let's take a look at planning for the future, picking the right accounts, and whether you should tackle your debt before working towards other financial goals.

What are your goals?

While you likely already know that saving money is something you "should" be doing, you may not have gotten any further than that. Ideally, you've already created a budget and know how much you can put aside for expenses beyond your everyday bills. If not, tackle that first, so you can give all of your dollars a job.

Once you've done that, you can set some goals for the future, so you know what you're saving for, and can work within the timelines that come with them. For example, if you want to take a nice vacation next year, you can decide how much money you'll need, make a plan for how to save it, and pick the right account to help you grow your cash (more on that below) without leaving you vulnerable to potentially losing money.

Other common goals many people have are saving to buy a home or saving for retirement. (Remember, if you're Childfree or permanently childless, you don't have to worry about saving for your children's education – but you may want to save for your own!) Buying a home is likely a more medium-term goal, and you might be a few years away from that (especially if you're intending to buy in a more expensive part of the country and are planning to make a 20% down payment, as is recommended). Retirement is a long-term goal, and depending on your age, it could be 20, 30, or 40 years out. Based on these timelines, you'll pick accounts to grow your money and keep it safe.

How do you choose (and use) the right accounts?

Don't assume that you have to stick with the same financial institutions you're already using. If you've been an account holder at the same bank for your entire adult life, don't think you have to be loyal to that institution, for example. Instead, remember that you're a consumer, and shop around to find the best institution and the best account for you. For a savings account, for example, you want to find one that will pay you a high rate of interest on your money and also make it easy to access it when you need it.

Don't be intimidated by this process! The internet makes it very easy to learn about the best accounts and banks out there. You can start by googling "best high yield savings accounts," or "best IRA accounts of [month, year]," and you'll end up with side-by-side comparisons of what's being offered the industry at large.

Your CERTIFIED FINANCIAL PLANNER™  will likely also be keeping abreast of changes in account offerings, and can do research on your behalf, too. When you're ready to open your new financial accounts, it might be quite fast and easy in some cases; for example, you can open a new online savings account in just a few minutes. Other account types might require more time and legwork.

Once you've got the accounts open, automate your contributions to help you stay on track. You won't have to remember to add money to your new savings account or IRA if you've got them set up to take money out of your checking account every month. Then you can watch your balance grow over time and the money will be available for the goals you set. You will have to find the balance between meeting your everyday financial needs and different goals for the future, and a CERTIFIED FINANCIAL PLANNER™  can help with this too. Financial planning is a living, breathing, dynamic experience, and you'll likely end up being flexible over time with what financial goals you're focusing on.

Should you pay off debt first?

You might have some debt to pay off alongside saving and investing for future goals, such as credit card debt or student loans. You're likely paying more interest on your debt (especially if it's credit card debt) than you will earn from investing, so it pays to knock out your debts sooner rather than later. But when it comes to investing, it's good to start as early as possible to give yourself time to benefit from compound interest. Ultimately, you have to find a balance, and a CERTIFIED FINANCIAL PLANNER™ can help with this too.

While it may be overwhelming to think about saving for the future, once you've got your budget in place and a plan in mind, it'll be easier to carve out the money for those goals. You'll also need to find the right places to keep (and grow) your cash, and work out a balance between paying off debt, meeting your everyday financial obligations, and working towards the future.
Jay Zigmont, PhD, MBA, CFP® is the Founder of Childfree Wealth, a life and financial planning firm dedicated to helping Childfree and Permanently Childless people. Dr. Jay is a CERTIFIED FINANCIAL PLANNER™, Childfree Wealth Specialist, and author of the book “Portraits of Childfree Wealth.” Dr. Jay is the co-host of Childfree Wealth Podcast. His Ph.D. is in Adult Learning from the University of Connecticut.

He has been featured in Fortune, Forbes, MarketWatch, Wall Street Journal, New York Times, Business Insider, CNBC, and many other publications.