Savings make more moments possible, like seeing your child graduate from college or closing on a dream home. They also provide an important safety net and are a crucial first step toward building wealth. Here are our top five tips for developing habits and behaviors that make saving second nature.
- Have a plan. Create a budget plan that takes your daily and long-term financial goals into account. There are many online tools to help track and prioritize your income and spending. Refer to your plan often to hold yourself and your pocketbook accountable.
- Aim for 20% and then some. Warren Buffett once said, "Do not save what is left after spending, but spend what is left after saving." According to Laurence Siegal, research director at the CFA Institute Research Foundation, saving up to 20%, 25% and even 30% of your income for retirement will protect you from a market crash. Take advantage of employer matches and look for ways to increase your return on investments to make these percentages more attainable.
- Put extra earnings aside. New income is easier to save. Consider contributing more than half of the funds you receive from raises, promotions, bonuses, and profit sharing to your savings account or 401(k). Many 401(k) plans offer an opt-in auto-escalation feature that automatically adjusts your savings rate as your earnings increase.
- Think before you act. Ensure that any time you do spend a large sum of money, it’s intentional. Avoid impulsive or emotional decisions by abiding by the 24-hour rule. Take the time to clearly and carefully think through the pros and cons of your purchase and discuss big moves with family members and/or business partners.
- Automate your savings. Setting up recurring transfers from one account to another is an easy way to save and avoid the temptation to spend. Move a fixed amount from checking to savings, investment and/or retirement accounts, or have a set amount deducted from your paycheck and automatically deposited into another account.
Putting your money into a secure high-yield savings account or certificate of deposit is another way to make maximizing your savings as easy as dropping a coin into a piggy bank.