Saving for the Future

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“Don’t just save money, save for your future and with purpose.” America Saves

Many Americans spend more than they save, and nearly one in five people are saving less than 5 percent of their income according to a Bankrate’s 2015 Financial Security Index survey.

Saving money isn’t the easiest thing to do, especially if you’re one of the many of Americans living paycheck to paycheck. Yet, saving for the future remains a vitally important endeavor — not just to enable you to make large discretionary purchases such as a big screen television or a luxury vacation, but for emergencies, living a life of dignity in retirement, or buying a home.

Many Americans have more month left than money

And, unfortunately, many Americans aren’t where they should be financially. A 2019 Charles Schwab Modern Wealth survey found that about 59 percent of American adults are living paycheck to paycheck.

If you’re having a hard enough time paying the bills and making rent payments without racking up debt, saving for the future is probably the last thing on your mind. Only 38% of people have an emergency fund, according to Charles Schwab, and one in five Americans don’t have a dime saved for retirement, according to a survey from Northwestern Mutual.

Building a “cash cushion” is an important step towards financial freedom. A cash cushion, or emergency fund, is essential if you want enough cash on hand to cover three to six months’ essential expenses.

A well-rounded savings strategy should focus on both short-term and long-term goals, says personal financial expert, Carrie Schwab-Pomerantz CFP®. And, if you can make moves to save extra dollars, they should be used in two ways: to pay off debt (credit cards and student loans) and to save.

The first step is to set a clear savings goal. Having this savings goal will help you when it comes to setting aside a specific amount every month or year in order to reach that milestone. Whatever your goal, the amount you set aside to get started does not have to be large. To jump-start your savings, consider automating your accounts to transfer the budgeted amount to your savings each month.

“Save and invest too little, and you might not be able to retire. Save and invest too much, and you may decide to retire early.” Vanguard Investments

Once you’ve set your savings goals, it’s time to start saving. Here are seven tips for saving:

  1. Make savings a priority. Each time you’re paid, put a portion of it toward savings. Saving money is a good habit no matter how much or how little you put away each month.
  2. Pay yourself first. Think of saving as paying yourself. In other words, before you spend your first dollar on monthly expenses, first you should set aside 10% to 15% of income for your savings.
  3. Automate your savings. Most financial institutions allow you to automatically transfer funds online or via mobile apps from checking to savings accounts.
  4. An emergency fund is a must. You will need an emergency fund somewhere in the ballpark of three to six months of your income. According to America Saves, and their motto ‘Start Small. Think Big’, they recommend starting with an emergency fund savings goal of just $500. 
  5. Find money to save. Keep track of everything you spend for a week – you’ll be surprised where the money goes. Adjust your spending habits a little and suddenly, you’re saving. And, don’t simply spend less. Save with a purpose, such as college expenses, retirement, or for emergencies.
  6. Keep the change. Some supermarkets have machines that count your coins and give you cash in exchange for a small fee. Gather up your spare change, pour it into the kiosk and see how much your coins add up to. Instead of spending it right away, consider diverting your newfound funds to savings.
  7. Cancel extra costs. Check to see if you have any old subscriptions that you’re not using anymore – whether it’s to a gym, magazine, or streaming service that you no longer use. Many services that you may no longer want could cost you hundreds of dollars per year.

Compound Interest

Interest can build your wealth for you. For example, if you deposit $100 in a savings account that offers 6 percent interest, by the end of the year your savings will have grown to $106. Compound interest can enhance these savings even more by earning interest on interest. With compound interest, the $106 you have after the first year would earn 6 percent again the next year: $6.36, or a 36-cent increase. Add that to the total, and you would have $112.36. If you leave your money in a 6 percent interest account for 40 years, you’ll have $1,028, over ten times the original amount.

The Rule of 72

Want to double your money? Use the “Rule of 72” mathematical formula to find out how long it will take to grow your money. First, divide 72 by your account’s fixed annual interest rate. For example, if your rate is 6 percent, divide 72 by 6. At that rate, it will take 12 years to double your savings. When you think about your financial goals, the Rule of 72 can make a positive impact on your savings over time by helping you make informed decisions.

Micro-saving

There’s a way to effortlessly save money, and turn tiny amounts into big savings.

Micro-saving is the process of regularly saving small amounts of money over time, and it’s something you can do nearly every day. You don’t have to earn a huge income to grow your savings, and better yet, it’s never too late to start.

There are many ways to micro-save — some simpler than others like “rounding up” and saving cashback rewards. These methods requires you to consistently transfer any redeemed cashback rewards from credit cards to a savings account — instead of opting for a gift card.

Perhaps the easiest micro-saving method of them all is via electronic automation. Several apps, like Digit and Acorns, make it foolproof to save spare change, but they charge fees.

Key Point

Starting small and starting now can make savings add up faster than you’d think.

The easiest way to save is to save automatically! Contact your employer to set up a direct deposit into savings each pay period or ask your bank to set up an automatic transfer from your checkings to your savings.

References:

  1. https://www.bustle.com/life/3-women-share-how-theyre-saving-for-their-big-life-goals
  2. https://money.cnn.com/2015/03/30/pf/income-saving-habits/
  3. https://content.schwab.com/web/retail/public/about-schwab/Charles-Schwab-2019-Modern-Wealth-Survey-findings-0519-9JBP.pdf
  4. https://news.northwesternmutual.com/2018-05-08-1-In-3-Americans-Have-Less-Than-5-000-In-Retirement-Savings
  5. https://www.practicalmoneyskills.com/learn/saving/growing_your_money
  6. https://communities.usaa.com/t5/Your-Future/The-Magic-of-Micro-Saving/ba-p/201610
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