How Much Should I Save? Kal Penn Explains | Mashable

00:03:23
https://www.youtube.com/watch?v=u-gFLH3Epb0

Summary

TLDRIn this discussion about financial responsibility, the characters explore strategies for saving money, emphasizing the importance of good habits and the impact of opportunity cost, like skipping daily coffee purchases in favor of future savings. The conversation highlights the need to allocate around 20% of one's income to savings, distributed among retirement accounts such as a 401(k), emergency funds, and possibly a 529 education savings account. They stress starting early with savings to maximize growth potential. This practical advice is illustrated with humorous touches, including playful banter about food choices and the use of a piggy bank named Trevor.

Takeaways

  • 💡 Save at least 20% of your income.
  • ⏳ Start saving early to maximize growth.
  • 🔄 Avoid unnecessary daily expenses.
  • 📈 Max out employer 401(k) match.
  • 🐷 Build an emergency fund.
  • 🎓 Consider a 529 for education savings.
  • 💭 Evaluate opportunity costs.
  • 👣 Small savings lead to big results.
  • 🏠 Use emergency savings flexibly.
  • 💪 Smart financial habits pay off.

Timeline

  • 00:00:00 - 00:03:23

    A person is about to order a large meal but is reminded by a friend, Beth, that money shouldn't be wasted on excessive purchases like ordering the whole menu. They discuss the importance of saving money and how small savings can accumulate over time. The friend emphasizes that saving doesn't mean depriving oneself but involves making conscious choices about spending. They suggest setting aside 20% of income for savings, with allocations towards a 401(k), a general savings fund for emergencies, and potentially for education through a 529 account. This approach is not just financially wise but also underscores the value of delayed gratification over immediate, less significant pleasures. Ultimately, the conversation is about making financially smart decisions without necessarily compromising on enjoying life.

Mind Map

Video Q&A

  • What percentage of income should be saved?

    It is recommended to devote about 20% of your income to savings.

  • What is a 401(k) plan?

    A 401(k) is a retirement account set up through your employer, often featuring matching contributions from the employer.

  • What is a 529 account?

    A 529 account is a tax-exempt fund for saving toward higher education expenses.

  • Why is it important to save when you're young?

    Saving when you're young is crucial as your money has more time to grow.

  • What is a piggy bank fund?

    A piggy bank fund is money saved without a specific purpose, useful for emergencies or unexpected needs.

  • How can small savings add up over time?

    Avoiding daily expenses like buying coffee can save a significant amount over time, such as $1,300 a year.

  • Is it too late to start saving for retirement later in life?

    It's better to start as early as possible, but starting later is still beneficial.

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Subtitles
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  • 00:00:00
    What are you gonna get?
  • 00:00:01
    - Well, I'm about to do it big today, "Beth".
  • 00:00:03
    You're gonna see, I'm very hungry.
  • 00:00:05
    Hey, can I get a Angus steak sandwich on brioche and
  • 00:00:10
    some double fried Belgian frites and spicy chili aioli, please.
  • 00:00:17
    - Nothing for me, thanks.
  • 00:00:20
    - Trying to count calories or something?
  • 00:00:22
    Hey, I really respect that.
  • 00:00:24
    - No "Kevin", I am not on a diet.
  • 00:00:26
    I just, I brought my lunch from home and I wanna save money.
  • 00:00:30
    - Save money, great call.
  • 00:00:32
    - Thanks. - By the way,
  • 00:00:32
    how much have you been trying to save?
  • 00:00:34
    Because I've been meaning to- - Well,
  • 00:00:35
    nobody really knows how much is enough.
  • 00:00:37
    You're just not supposed to spend money on crazy extras like ordering the whole menu
  • 00:00:41
    at a food truck.
  • 00:00:42
    I mean, everything looks amazing.
  • 00:00:43
    It's just not a good habit financially.
  • 00:00:46
    - Totally, totally.
  • 00:00:47
    Is it too late to change my order?
  • 00:00:50
    - Look at you making good choices.
  • 00:00:52
    Saving doesn't mean you have to skip lunch though.
  • 00:00:54
    The road to saving starts with knowing how and when to set money aside.
  • 00:00:59
    (Music)
  • 00:01:07
    Speaking generally, you can never save too much or start too early.
  • 00:01:11
    It's all just a matter of opportunity cost, or trade offs.
  • 00:01:15
    Let's say you didn't buy some fancy $5 coffee every day for a whole year.
  • 00:01:19
    You'd have saved up $1,300.
  • 00:01:21
    Which one seems more worth it?
  • 00:01:23
    The right now coffee or the future pile of cash?
  • 00:01:26
    With that in mind, try not to cringe when I say that, as a rule of thumb,
  • 00:01:30
    you should devote about 20% of your income to savings.
  • 00:01:34
    But don't worry, that's spread out over two, sometimes three categories.
  • 00:01:38
    First, you should be socking away money inside of your 401(k),
  • 00:01:43
    a retirement account that's set up through your employer.
  • 00:01:46
    Depending on the details of your plan,
  • 00:01:48
    your employer will likely match a certain percentage of your contributions.
  • 00:01:52
    And it's important to max out that match especially when you're young.
  • 00:01:55
    The closer you get to retirement, the less time your money has to grow.
  • 00:01:59
    So your savings dollars are never more valuable than they are right now.
  • 00:02:03
    Next, you should be building a piggy bank fund.
  • 00:02:07
    Like this one that I use.
  • 00:02:09
    His name is Trevor.
  • 00:02:10
    This is money that you aren't saving for any specific purpose, but
  • 00:02:14
    it's nice to have if the occasion arises.
  • 00:02:16
    Maybe you lose your job and need to pay a few months of rent.
  • 00:02:19
    Or maybe what started as an emergency fund actually becomes the down
  • 00:02:22
    payment on a house.
  • 00:02:23
    The possibilities are endless and way less creepy than this.
  • 00:02:26
    Who knows?
  • 00:02:27
    Maybe Trevor will get too chubby and he'll need a friend.
  • 00:02:30
    Hi Trevor, I'm Liam.
  • 00:02:31
    Hi Liam, I'm Trevor.
  • 00:02:33
    I'm concerned about your weight.
  • 00:02:34
    What? The final savings category is for
  • 00:02:37
    higher education.
  • 00:02:38
    And it may not factor into your budget just yet.
  • 00:02:40
    Regardless whether it's for a new degree you're pursuing, or your newborn's future
  • 00:02:45
    schooling, it's wise to get out in front of the tuition bills early.
  • 00:02:48
    And the best way to do that is by setting up a 529 account.
  • 00:02:53
    A tax exempt fund that allows your education savings to grow over time,
  • 00:02:57
    kind of like a 401(k).
  • 00:02:58
    So good move saying no to the frites, but
  • 00:03:00
    you'll probably have to put in a little more effort to hit that 20% threshold.
  • 00:03:05
    The good news is it'll all be worth it down the line.
  • 00:03:08
    And I'm just not saying that cuz you're saving calories.
  • 00:03:10
    (Music)
  • 00:03:13
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  • 00:03:14
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  • 00:03:18
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  • 00:03:20
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Tags
  • savings
  • financial advice
  • retirement
  • 401(k)
  • 529 account
  • emergency fund
  • opportunity cost
  • money management