Secrets to saving for the future
By Kristi Ellington
LPL Financial
What’s the problem? When it comes to a lack of savings, it is
often not a question of low income, but a matter of high
spending.
While it’s very true that often we’re put into situations where
we must spend money (due to loss of employment, health care bills,
home repairs, etc.), for many of us our excessive spending is
merely a habit we can learn to break … or at least control.
By Kristi Ellington
LPL Financial
What’s the problem? When it comes to a lack of savings, it is often not a question of low income, but a matter of high spending.
While it’s very true that often we’re put into situations where we must spend money (due to loss of employment, health care bills, home repairs, etc.), for many of us our excessive spending is merely a habit we can learn to break … or at least control.
But where do we begin? Many people would like to reduce their spending and increase their savings, but it seems like such a monumental task that they simply don’t take any steps in the right direction. Sound familiar? If so, don’t shrug it off any longer. Saving money can begin right now, and you can start in small ways.
Here are several easy ways to increase your savings.
Secret No. 1: Pay yourself first. When you get a paycheck, you likely pay your rent first, your car payment second, your insurance third, and so on and so on. Somewhere at the very bottom of your list is you.
Why are you at the bottom? Probably because you know you won’t penalize you if you don’t make a payment to you. The point is this… hold yourself accountable. Start by putting money into your savings account first.
Take care of YOU before anyone else, so there are no excuses at the end of the month. One rule of thumb suggests 10 percent of your after-tax income as a starting place. (Ideally, your after-tax income has already set aside funds in a 401k, IRA or other retirement savings vehicle.) Unless your monthly bills are higher than your monthly income, you should be able to determine a set, comfortable amount that goes into savings every month … no ifs, ands or buts. Stick to it!
Secret No. 2: “Put it on the mantle.” My grandmother used to use that phrase when I was making a major decision, generally related to a purchase. She would say “put it on the mantle,” meaning that I should set it aside and think on it. That’s great advice, Gram!
When you’re considering a large purchase (like a car) or even small (like a pair of designer shoes), try putting it aside, even for just a week or two.
Allow yourself time to think it through. If, after that time, you still feel it’s a good idea, proceed … knowing it’s not just an impulse buy. If not, don’t. Most of us have made at least one (and probably more) purchases of this nature that we have later regretted. What if you had the money back for every such purchase? What if that money was collecting interest in your savings account? It could really add up.
Secret No. 3: Shop smarter. We’re all in a hurry, so it’s easy to grab items like snacks or coffee when convenient. But think about it … if you stop at a convenience store for a 12 oz. coffee every morning, that’s probably about $1.75 you’re spending every day … that adds up to over $600 every year!
What if, instead, you bought a $10 coffee maker for your office and bought your coffee grounds in bulk? How much money could you save? And how could interest affect what you’re saving? If you saved just $600 per year in a basic savings account with a 5 percent rate of return, after 30 years you could potentially have more than $30,000 … and that’s after taxes! Start paying more attention to those “little” expenditures. They can really add up!
Secret No. 4: See your destination. They say that hindsight is 20/20. Think about this: if 10 years ago you began saving just $200 per month in a shoe box under your bed, then today that shoe box would have $24,000 in it!
Unfortunately, you can’t go back in time. But you CAN look ahead. Use a financial calculator (there are free calculators available online) and start plugging in numbers. Calculate where you could be in 20 to 30 years depending on how much you’re willing to save today. Once you know what you COULD achieve, saving money could become your favorite pastime – a competition (with yourself) to see how much you can increase your future net worth. This can be a great opportunity to teach kids about good money habits, have fun with it!
Secret No. 5: Ditch the shoebox. Speaking of that hypothetical shoebox under your bed … the money in that box might collect dust, but it won’t collect interest.
And while I seriously doubt that you keep money in a shoebox, take a moment to consider where and how you save your money.
While a traditional savings account can earn you interest, there are other options available to you that could potentially earn you more.
Perhaps you’ve heard people speak about money market accounts or CDs, but you’re not sure what they are or if they’re right for you. It’s a good idea to learn all you can and make informed decisions about your money.
The old saying is “cash is king.” When you reach one of your milestone moments, whether a happy one such as a buying a home, or a challenging one, such as job loss, there is great comfort in the security of savings.
Kristi Ellington is a local independent financial consultant. Ellington provides access to securities and advisory services through LPL Financial, member FINRA/SIPC. She can be reached in her Gilroy office at (408)848-0874, her Hollister office at (831) 634-1144 or at kr**************@lp*.com.
