Commit to Saving Money Every Day!
Now and then, I hear a few students in my classes grumble when I say “in my opinion, a regular savings habit is the best predictor of long-term financial stability, security, and success.” Sometimes, a few of these individuals voice their concern that they don’t earn enough money to save anything at all.
Is this true? Perhaps. However, I offer to review the income and expenses of anyone with a regular paycheck in order to help them find something to put away for the future. I adamantly believe that it can be done.
Here’s the reality of savings:
Savings is a commitment, not an amount.
That sounds simple, but it’s true. When we’re earning $15,000 a year, we think that if we just earned another $5,000 a year, we could start putting some money into a savings account. When we start earning $20,000, we need another $5,000 before we start saving. And so on and so on. There is no amount of money that will overcome our lack of commitment to save something each month.
Conversely, there are extraordinarily few amounts of meager household incomes that will keep a committed saver from putting a few dollars away each month.
You can save, too. Start today with even 1% of your monthly income. You could save dollar bills or change, set up an automatic transfer to an online savings account, or stash away work bonuses or cash gifts. Within a few months, your savings could cover a car repair, replace a small appliance, or be used for a co-pay on dental procedures. Having a savings to use in these circumstances will keep you from taking on debt and reduce the stress of unexpected expenses. Secure these benefits for yourself by making the commitment to save today.
Savings is a commitment, not an amount.
Just Save It!
When asked what I think the single most important habit of financially successful people would be, my answer is an easy one: they save!
So when I’m asked, “What should I be better at with the whole personal finance thing?” again, my answer is easy: Just save, Baby!
I don’t care if it’s $5 a month or $5,000 a month. We need to be in the habit of putting something (ANYTHING) away for future use. Learning to delay gratification and consider future needs and wants is absolutely vital in reaching our short- and long-term goals.
That said, other questions I hear often include, “Where do I put my money?” and “How much should I be savings?”
Here’s my opinion (see image below):
- Have an emergency fund of at least $1,000 up to 6 months or so worth of our essential monthly expenses. Use savings accounts, money market accounts and certificates of deposit.
- Use these same accounts or online savings accounts to save for short-term goals (vacations, gifts, appliances, furniture, and cars or trucks)
- Use mutual funds, stocks, and bonds as the financial vehicles within our 401(k) or 403(b) employer-matching accounts. Max the match!
- Use mutual funds, stocks, and bonds as the financial vehicles within our Individual Retirement Account (IRA). Max the annual deposit!
- See a financial adviser for additional guidance, but an individual investment account may be the next step.
Of course, there are many other investment options, such as life insurance, real estate, but these are a few of the basics to consider.
Why Savings Need to Be “Inconvenient”
The habit of saving is the best indicator of long-term financial stability.
I firmly believe this, and I teach this principle in all of my classes, regardless of their income level. The habit is more important than the monthly contribution or even, initially, the amount in the account.
I also believe that setting up automatic transfers into our savings account (either through our bank or credit union or, even better, through our employer’s direct deposit) is key to short- and long-term savings success.
That said, being easily able to access money in our savings accounts is just as likely (though I believe more so) to be a curse than it is to be a blessing.
Many of us, myself included, are “savings raiders.” If we see several hundred dollars available to us in our savings account, and if it’s easy to transfer that money back into our checking account, we’re much more likely to fall prey to impulse purchases or to justify spending on “can’t-pass-this-up” deals.
I’m not proposing any sort of institution-imposed delay to getting access to our saved funds, but for any savings raiders, I do suggest that we open a savings account at an institution that is NOT convenient. Here are the particulars to look for in the ideal savings account if you’re a savings raider:
- It should have LIMITED BRANCHES (ideally NOT near home or work or along our commute)
- It should have NO evening or Saturday hours
- Do NOT request an ATM card
- Find a financial institution that does NOT have a drive thru.
I have a local credit union that matches these criteria, and I use it to save for birthday and Christmas gifts for my wife (the only account I do NOT want to her see, but she does know it’s there). Otherwise, I’m too tempted to use that money to patch budget shortfalls or fund fun family activities. To fund the account, I have money automatically transferred there using bill pay from my main checking account in another financial institution.
We also use a separate online bank to save for a big family vacation coming up next year. I send off that deposit using bill pay (automatically), I’ve declined an ATM card, and I’ve even refused to connect that account to our main checking. That way, if I want to access money in that savings account, I must request that they cut a check and mail it to us. Those extra four or five days make it too inconvenient to raid the account for anything frivolous.
So let’s make it our mantra: “Inconvenient Savers Save Best.”
Do You Have Questions About or Suggestions for How to Save Money?
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Todd Christensen, Director of Education,
Debt Reduction Services, Inc.