Money doesn’t motivate everyone but I don’t know one person who doesn’t want financial stability. This Forbes article I came across a few weeks ago gives some specific tips that we can all incorporate to help to insure that these dreams of a strong financial future become realities.
by Erik Carter, Contributor
Did you know this week is America Saves Week? The Week was started in 2007 as an “annual opportunity for organizations to promote good savings behavior and a chance for individuals to assess their own saving status.” With the current U.S. personal savings rate down to 3.9% as of December, America Saves Week couldn’t come too soon. After all, saving is the foundation of your financial future. If you missed the Week’s events, here are some steps you can take to increase your savings and build a foundation for future financial success:
1) Know what you’re saving for. As the author of The 7 Habits of Highly Effective People put it, “begin with the end in mind.” To me, the ultimate goal of saving is to reach financial independence, where you no longer need to work to live comfortably and safely and can spend your time however you like. Have some fun and daydream about what you would do with all that free time. Add in some shorter-term goals along the way like becoming debt free or buying a new car or home. Finally, writing them down makes them more likely to happen. You may even want to use images and put them somewhere prominent where you can see them and feel motivated. For example, America Saves Week had people make posters of their goals and post them on Facebook or Twitter.
2) Make sure your saving goals are SMART. Once you get past the daydreaming phase, you’ll want your goals to be more concrete. They should be specific, measurable, achievable, realistic, and trackable. For each goal, estimate what it will cost and use this calculator to see how much you would need to save each month to achieve them.
3) Find ways to reduce your expenses. Unless you have ways of earning additional income, this is where the money will come from to fund your goals. The first step is to look at your bank and credit card statements to see where your money is going. (Programs like Mint and Yodlee MoneyCenter can help you do this online for free.) Then get rid of anything unnecessary or wasteful that you can eliminate or replace. Some examples would be a gym membership you don’t use or can replace by exercising at home or outdoors, a subscription to a newspaper or magazine you don’t read or can access online, cable channels that you don’t watch or can be replaced, a landline phone made obsolete by your cell phone, a cell phone that can be replaced by a cheaper prepaid plan, and coffee and lunch that you can bring from home instead of buying out. Finally, see if you can reduce your remaining bills by shopping around or negotiating them down. There’s even a company called Billcutterz that will try to negotiate your bills for you and split the savings 50/50 with you.
4) Create a budget. Yes, the dreaded “b” word. Instead of looking at it as deprivation, think of budgeting as making sure your spending reflects your priorities and values. After all, we’re bombarded every day by marketing and advertising designed by some of the smartest people on Madison Avenue to convince us that their priorities are ours. Budgeting allows you to take back control over your money and make sure that your needs (both short and long term) are being fulfilled before your wants. If necessary, that means weighing each of your remaining expenses against your savings goals and making the conscious decision of what takes priority. You can then make a pledge to save towards your goals with America Saves.
5) Pay yourself first. I know it’s a cliche but once you decide how much you’re going to save for your future goals, the best way to make sure that you actually do it is to set that money aside before you even have a chance to spend it. Your employer’s retirement plan makes that easy since the contributions are deducted right from your paycheck so it’s a great place to start, especially if your employer offers a match. You can do the same thing outside of your retirement plan by having the money automatically transferred into a separate savings or investment account.
6) Consider escalating your savings over time. If you can’t save quite enough now, one option is to start with what you can do now and then gradually increase your savings rate over time. Some retirement plans have a contribution rate escalator that allows you to have this done automatically. This is one of the most powerful ways to build wealth over time. In fact, there’s a book called The Automatic Millionaire that details the stories of ordinary people who were able to became millionaires with this strategy.
7) Stick to the plan. Now that you have less to spend, it’s important that you stick to your spending targets or you could end up accumulating debt. You can track your expenses on a worksheet like this or use tools like Mint, Yodlee MoneyCenter, and Personal Capital to monitor your spending online for free. Some sites will even alert you if you start overspending in a category. If you don’t want to count every nickel and dime, another approach is to give yourself a fixed weekly monthly allowance in a separate checking account or even in physical cash to be used for discretionary expenses like shopping, food, and entertainment. The key is that when the money is gone, it’s gone until the next week or month.
America Saves is a noble concept but saving should really be something we focus on every week. By following these steps, you can get on the path to make saving a habit. When you do, the rewards will be much greater than anything America Saves Week could provide.
Erik Carter, JD, CFP® is a senior resident financial planner at Financial Finesse, the leading provider of unbiased financial education for employers nationwide, delivered by on-staff CERTIFIED FINANCIAL PLANNER™ professionals. For additional financial tips and insights, follow Financial Finesse on Twitter and become a fan on Facebook.