Saving and Investing

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“The easiest way to wealth are saving and investing in your mind and in appreciating assets.”

Save and invest today for the life and financial freedom you want later. Investing for the long-term is the only way to truly build wealth and achieve financial freedom.

Retirement doesn’t mean what it used to for a lot of Americans. It used to be something you could count on — and when it came, you were going to pursue the goals and lifestyle you dreamed about and love.

Today, many Americans don’t believe that they will retire, while others are not waiting until retirement and are doing what they love now.

Regardless of your unique circumstances or life’s priorities, it important to save and invest now so later the resulting financial freedom will allow you – in a tax advantaged way – to enjoy a better and happier life later.

A smart investor:

  • Plans for life’s unexpected challenges and investing in uncertain times
  • Conducts research on a product before investing
  • Assesses the impact of fees when choosing an investment
  • Understands that risk exists in all investments
  • Avoids “get rich quick” and “can’t lose” schemes
  • Recognizes the power of compound interest
  • Recognizes the importance of diversification
  • Plans for and invests according to his/her future needs and goals
  • Recognizes the benefit of long-term, regular and diversified investment
  • Verifies that an investment professional is licensed

Establish Emergency Savings

Unexpected emergencies often sabotage our financial goals, so getting in a savings mindset and building an emergency fund is crucial. Start small and think big by setting a goal of a $500 rainy day fund. Once you’ve reached that goal, it will be easy to continue!

Open Your Savings Account

If you don’t have a savings account, now’s the time! Ensure your savings account is federally insured with a reputable financial institution with no fees (or low fees).

Set up Automatic Savings

The easiest way to save is to save automatically!

Choose the amount you would like to automatically save each period. Even $10-50 of your paycheck, weekly or bi-weekly, can provide substantial savings over time.

Contact your employer to set up a direct deposit into your savings account each pay period or set up an automatic transfer from your checking account to your savings account at your financial institution.

Even small amounts, saved automatically each pay period, make a big difference.

Get Serious About Reducing Your Debt

Paying down debt is saving!

When you pay down debt, you save on interest, fees, late payments, etc. Not only that, by having savings you’re less likely to need credit for emergencies – allowing you to keep a lower credit usage percentage.

When you reduce your debt, you save on interest and fees while maintaining or improving your credit score! Create a debt reduction plan that works best for you. Utilize America Saves resources to see the different options to pay down debt.

Get Clear On Your Finances

Create a Spending and Savings Plan that allows you to easily see your income, expenses, and anything leftover. Once you have a clear view of your finances, you can determine where to make changes and what else you should be saving for based on your financial goals.

It’s always the right time to create a saving and spending plan (aka a budget). It’s also a good idea to revisit that plan annually or when a major shift occurs in your income or expenses.

Here are several tips to help ensure that your money is working smarter and harder for you.

Step 1. Determine your income.

To create an effective budget, you need to know exactly how much money you’re bringing in each month. Calculate your monthly income by adding your paychecks and any other source of income that you receive regularly. Be sure to use your net pay rather than your gross pay. Your net pay is the amount you receive after taxes and other allocations, like retirement savings, are deducted.

Step 2. Determine your net worth which is your assets minus your liabilities

Net worth is assets minus liabilities. Or, you can think of net worth as everything you own less all that you owe.

Calculating your net worth requires you to take an inventory of what you own, as well as your outstanding debt. And when we say own, we include assets that you may still be paying for, such as a car or a house.

For example, if you have a mortgage on a house with a market value of $200,000 and the balance on your loan is $150,000, you can add $50,000 to your net worth.

Basically, the formula is:

  • ASSETS – LIABILITIES = NET WORTH

And by the way, your income is not included in a net worth calculation. A person can bring home a big paycheck but have a low net worth if they spend most of their money. On the other hand, even people with modest incomes can accumulate significant wealth and a high net worth if they buy appreciating assets and are prudent savers.

Step 3. Track your cash flow which is both your expenses and your spending.

This step is essential. It’s not enough to write out your actual expenses, like rent or mortgage, food, and auto insurance, you must also track what you are spending.

If you’ve ever felt like your money “just disappears,” you’re not the only one. Tracking your spending is a great way to find out exactly where your money goes. Spending $10 a day on parking or $5 every morning for coffee doesn’t sound like much until you calculate the total cost per month.

Tracking your spending will help you pinpoint the areas you may be overspending and help you quickly identify where you can make cost-efficient cuts.  Once you’ve written out your expenses and tracked your spending habits, you’re ready for the next step.

Step 4. Set your financial goals.

Now you get to look at your present financial situation and habits and decide what you want your future to look like. Ask yourself what’s most important to you right now? What financial goals do you want to achieve?

Some common goals include building an emergency fund, paying down debt, purchasing a home or car, saving for education, and retirement.

Step 5. Decrease your spending or increase your income.

What if you set your financial goals and realize there’s not enough money left at the end of the month to save for the things you want?

You essentially have two choices. You can either change the way you manage your current income or add a new source of income. In today’s gig economy, it’s easier than ever to add a stream of income, but we know that everyone’s situation is different, and that’s not always an option.

Even if you can add income, you may have identified some spending habits you’d like to change by decreasing how much you spend.

Take a look back at your expense tracking. For the nonessential items, consider reducing your spending. For example, if you find that you are spending quite a bit on entertainment, like movies or dining out, reduce the number of times you go per month.

Then apply the money that’s been freed up to your savings goals.

For more ideas on how to increase your savings, read 54 Ways to Save.

Step 6. Stick to your plan.

Make sure you stick to your spending and savings plan. To make saving more efficient, set up automatic savings so that you can set it and forget it! Saving automatically is the easiest way to save.

Reassess and adjust your plan whenever you have life changes such as marriage, a new baby, a move, or a promotion.

Following your plan ensures that you’re financially stable, are ‘thinking like a saver,’ and better prepared for those unexpected emergencies.

References:

  1. http://www.worldinvestorweek.org/key-messages.html
  2. https://americasaves.org/media/yordmpza/7steps.pdf
  3. https://old.americasaves.org/blog/1754-creating-a-budget-for-your-family
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