If you haven't started saving and investing for your future, there's no better time than now. The sooner you start, the greater your chances of reaching your financial goals — whether they're short-term goals like buying a car within the next year, or longer-term goals, like college tuition or retirement.
Saving even a small amount of your income on a regular basis can help you build security. Once you start investing what you save, each dollar you invest has the potential to start reaping the rewards of compounding. It’s important to remember, however, that a periodic investment plan like dollar cost averaging can’t guarantee a profit or protect against a loss in declining markets.
There are ways you can pay yourself first automatically. If you have access to a 401(k), 403(b) or 457 tax-deferred savings plan at work, you can save for retirement through regular payroll deduction contributions to your plan. When you contribute to your plan pre-tax, you reduce your current taxable income which also reduces your current taxes. Neither your pre-tax contributions nor any of the earnings get taxed until they are withdrawn.1
If your employer matches part of what you contribute, you should try to contribute the full amount that will qualify for the match. If you don’t contribute the full amount, you’re missing out on free money from your employer — and you’ll also miss out on compounding and the potential tax-deferred growth of your account.
You can also pay yourself first by having part of your paycheck deposited directly into your savings account. If you don't have direct deposit available at work, your bank may be able to set up automatic transfers from your checking account into your savings account.
A rainy-day fund is a reserve of cash you can dip into in the event of a financial hardship, like a job loss or serious illness. A good rule of thumb is to have enough cash set aside to cover three to six months' worth of living expenses. If you have to take money out of the fund, make sure you quickly restore the balance so you'll have enough cash available later.
The best place to keep a rainy-day fund is in an account where your money will be safe and liquid (easy to access quickly, without fees or surrender charges), like a savings account at a bank.
It's also important to decide what your financial goals are and to prioritize them. Then you’ll be ready to make decisions about how to save and invest for each goal.
There are different types of investments to choose from, including:
You can choose a mix of investments based on your goals, your time horizon for achieving them, the level of return you'd like to try to get and your tolerance for risk.
You also have options when it comes to savings and investment plans and accounts — many can offer significant tax advantages. Workplace savings plans and Traditional and Roth IRAs can be great vehicles for retirement savings beyond any pay you contribute to a plan at work. You may also want to consider how a 529 plan can be a tax-effective way to save and invest for your child's college education.
1 Withdrawals of earnings from a retirement account or annuity are subject to ordinary income tax, plus a possible federal 10% penalty if you make a withdrawal before age 59 ½.
Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value.
The tax information contained herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
There are inherent risks in investing in securities. Products may be subject to market and other risk factors. It is possible to lose money by investing in securities.
TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products.
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