Pay yourself first. We’ve all heard that anecdote before, but how many of us have put it into practice? It seems Americans have some work to do since approximately 40% of people do not have enough cash on hand to cover a $400 emergency expense, according to a 2018 Federal Reserve study.
As much as we intend to save what’s left over at the end of the month, there just never seems to be enough to make that transfer. So how can we set ourselves up for success and make saving a consistent priority? By making the simple choice to automate your savings and reducing the temptation to spend your money without planning ahead.
Awesome idea, but how do I do that?
A great first place to start in by contributing to your company’s tax-advantaged retirement plan such as a 401(k) or 403(b) plan. There are several reasons why these types of plans are preferred:
- They are pretax.
- Investments are each paycheck in smaller increments.
- The money never hits your bank account.
- Lots of plans offer a company match.
Next up is making sure that you have set-up automatic transfers at your bank from your checking to your savings or investment accounts. Review when you are regularly paid and schedule the automatic saving transfers within a day or two of those dates. The amount to be transferred should be in line with the excess remaining after all monthly bills are paid and treated like another monthly, non-negotiable expense.
It’s important to review your monthly spending so you know where your money is going. Be sure to budget for things that bring you joy whether that is eating out, self-care routines, travel, etc. If you decide to make some cuts to your spending, be sure to follow through with saving that money because seeing the excess in your checking account creates the temptation to spend it elsewhere.
While “setting and forgetting it” is exactly the strategy to simplifying and growing your savings, it’s also a good idea to be flexible with your saving amounts. When you feel confident that you can save more or you have a positive change in financial status such as a raise at work, it might be a good time to increase your automatic savings amount.
Finally, it’s a good idea to track your progress after automating your savings. It is super satisfying to watch your accounts increase and serves as motivation to keep going.
By: Amy Getz