Tips to Help You Start Saving
Saving money is something everyone knows they should do and yet the savings rate in the United States is negative. What this means is that we are not saving any of our income, but instead we are spending more than we have.
So, why is that a problem? When you have money saved you have greater independence to change jobs, handle unforeseen emergencies, retire when you are ready, and make life decisions without basing them entirely on finances.
Basic Savings Guidelines:
- Start Early: The younger you begin saving, even small amounts, the more time you are giving your money to earn interest and compound.
- Know Your Budget: You can't set savings goals until you know how much money you have coming in and where it goes. A budget will tell you if you have extra money at the end of the month, where your money is being spent and what categories you can rework to save money.
- Spend less than you earn: The golden rule of saving is to keep your spending in check. Figure out the annual costs of some extras you buy like your daily latte or lunch out. Decide if you are willing to spend that amount each year and make changes. It's satisfying knowing exactly how much less you can spend by making small changes in your buying habits.
- Make it automatic: You can't spend what you don't have. Choose an amount to be automatically deducted from your payroll check or from your checking account each month before you have the chance to spend it.
- Keep it separate: Have a different savings or money market account for your savings goals. If it is a liquid account, pass on the ATM card or convenience checks that go along with the account so it's not so easy to access your money on a whim.
- Use employer-sponsored plans to your advantage: Many employers match 401-K contributions up to a certain percent. Make the maximum contribution you can to receive the full match. It's free money! In addition, because your contributions are pretax, you will be reporting less taxable income, which reduces your income tax bill.
- Pay off debt: Debt can be a huge obstacle to a savings plan. The more debt you have, the less money you have each month to save and grow your money through compound interest.
- Salary Raise = Savings Raise: If you get a raise, immediately increase the amount of the automatic deduction from your payroll check. You won't miss it.
- Up your savings every year: Reevaluate your savings plan at least annually. Chances are you can increase your savings - even just a little bit - over your current spending rate.