When there are credit card payments, student loan payments, rent, mortgage loans, car payments, utilities, groceries,… and the good membership of the Ole Gymnastics, which competes for the precious budget dollars, it can be So easy to ignore savings.
In this post, I show you why it is important to save monthly. How will we do this? By paying ourselves first. That’s right – before all these other bills. Don’t worry, if we do it right, your lights won’t be closed to you.
I’ve heard it when I do financial advice, my friends have said it in random conversations, and the data shows that their comments are true … “After all the fixed expenses, it’s hard to make any money to save each month.”
I hear this and think of death to the savings account, death to retirement and death to the financial freedom itself. And I’m not a big fan of death to these things, so let’s remedy this we’re going to? Ok, great. It’s a deal.
First the numbers
In a study of about 7,000 Americans, 69% reported less than $ 1,000 in their savings accounts (GoBanking rates). Worse than it reported 38% No savings at all! Jepp, $ 0. The study even has places, “… to live beyond their funds …” as a probable reason for the lack of savings.
Either way, the above paragraph just covers savings accounts. I shudder that even Broach the topic ‘Retirement’ … eh. What the heck – let’s find out.
Same company, different Examination, similar results:
33% of Americans have zero pension savings (2016). I shake my head … not violently, but with a clear purpose … let’s continue. A few quick takeaways from the data:
- Women are more likely than men to have any pension savings.
- 3 in 5 millennia have started a pension fund (good job of us).
- But – and thank God for this for the seniors – retirement savings correlate closely with age. This means that the older you are, the more likely you are that you get an amount of higher dollar.
Although we are happy with our wiser elders, that does not mean that we cannot try to narrow the gap.
I know and understand that saving money at a young-ish age can seem like a less urgent task. Retirement is decades away and you may or may not have a family, a house, children, … but don’t buy into that hype. I claim that after removing bad debt is no more urgent task than saving money – somehow.
Why is it so important to save now? Because there is no compensation for the time when it comes to earning interest. Example (I assume a 5% return here):
- If you start saving a modest $ 100/month at the age of 35.
- Start at 30 and you will see $ 113,803. (Remember that you only contributed another $ 6,000 to earn the ~ $ 30K difference)
- Have a great mentor and start saving your 100 dollars on 18 … you will hit 65 with $ 224,430 in your account. Remember, it’s from $ 100/month !! Compared to 30 years of savings, 47 years will serve you an additional $ 141K For the price of $ 20k in extra contribution.
There really is no substitute for time When it comes to investment. Now that we know that savings are a huge priority, how do we tackle it to happen?
What do I need to do to start paying yourself first
1) Determine your target
Do you save money to create an emergency fund? Or maybe you save for a down payment for your first house?
Retirement, peace of mind or maybe just because you think it’s the cautious thing to do? Either way, now is time to identify your goal. If you don’t know where to go, it will be terribly difficult to get there.
In addition, it is important to determine the dollar amount needed for each of these goals. You will eliminate the possibility of flowing in savings limbo while cycling back and forth between saving $ 1,000 or $ 2,000 for your emergency fund, for example. Reset on your total amount allows you to create a specific savings plan that has a final end date.
Another option is that you would like to save for more than 1 reason. Let’s go with a holiday and a down payment, for example. While you eventually come to both goals, if you follow the procedure, I have found that those who prioritize and perform are more successful and when their goals are more efficient.
Meaning rather than sharing your monthly savings into 2 accounts, select the Fund that is most urgent and achieve this goal first. If you would rather go on vacation before buying the new house, top the holiday fund before thinking about the payment. Once the holidays are financed, cross it from the list and move on to your next goal.
Once you have identified your goals (s), it is now time for step 2.
2) Create a specific account – or accounts
Your options include savings accounts, brokerage accounts, bonds, additional control accounts, pension accounts,… the point is – you have options and depending on the target / target you have decided, there are different accounts that may be more appropriate for you.
For example, if you save for retirement, you will not focus on accounts that provide liquidity (eg they do not give you immediate access to your cash). These account types include IRA, 401K, 503b and the like.
Many of these only allow penalties with retirement at retirement age and if retirement is your target-it is for you. With a lack of immediate access, you will not be tempted to dip into your pension fund on a whim.
In addition, these funds give you access to many listed shares and other funds that have the potential to earn everything from moderate to high returns (of course there is a risk associated with this type of savings – consult a professional).
If you save for an emergency fund, vacation, payment or other short -term event, you will have immediate access to your cash in the event of a mentioned emergency or when it is time to pay up.
For this I would recommend a high -yield savings account or even an individual brokerage account. The savings account should provide almost a 1% return, which is probably better than your control account or mattress, and the broker account gives you access to the market and all its goods (funds).
Choose your investments carefully and make sure you are able to sell your funds or transfer your cash when you need to make it happen.
All of these accounts can either be set online or over the phone and should not take you at all too long. Just make sure you are doing your homework and investing with a reputable company that does not benefit from you and your cash.
3) Create an automatic transfer
This is how you will actually Pay yourself first. My wife and I both get our paychecks directly deposited in our control account, so I have an automatic transfer that has been created to our various accounts on each payday. In this way, we do not have to think about it, worry about remembering, considering transferring less this week or otherwise deviating from the course.
Let’s return to your emergency fund example from step 1 and say you decided to divide the middle and put $ 1,500 away for your ability to sleep at night. I am writing on January 18th and we say the target date is June 1st. It gives you approx. 4.5 months or 19 weeks to save up. If you get paid every two weeks, it’s 9 paychecks. Simple Division tells you that you have to save $ 167 each check to make sure your $ 1,500 is saved in early June.
Now that you know what is needed, you can set your automatic transfer for $ 167 Each payday to your new account. Because to pay yourself first means Paying yourself first, This means that you do not consider what this savings will do with your budget. You decide what amount is needed and you make it happen. When done we move to the fourth and final step.
4) Evaluate and Check the Fallen to Your Budget
Now you are in injury management mode.
Because saving (inserting your land here) is a priority you have decided to focus on, there can be no bad feelings over to put this money aside. People are not prepared for emergencies, retirement and random life events in our country because they have not prioritized saving a priority. You prioritize a priority by first paying yourself, and by doing so, other areas of your financial life can take a hit.
However, this does not have to be the case. Saving should not mean no more trips to ice cream to the kids, it just means that it is now time for you to become creative. My wife and I eliminated $ 200 in normal consumption a month by simply making a few phone calls and asking a few awkward questions.
It is very likely that if you looked hard at your budget or consumption habits, there are some cuts that can be made out there. Remember that you sacrifice in the short term for long -term stability and wealth.
In the end, it is a strengthening feeling to make you and your family’s stability priority # 1.
We have seen that working together and paying ourselves first teaches us to live on less than we do as if it is the right normal. Fighting from paycheck to paycheck can sometimes be demoralizing. But if you practice financial discipline and prioritize saving a priority, these victims will soon start to pay off.
