Savings is the key to financial success or achieving financial independence. So start right now. Take some action now to get your cash flow and savings moving in the right direction.
I know this is not the most exciting article and it may not apply to everyone but it is important enough that I feel the need to write about it and remind people of its importance.
Hopefully you decided or know what percentage of your income you want to save. I hope it is at least 10%-15% although saving anything is better than nothing.
Do what you can now; don’t keep procrastinating with your finances. There is never going to be a better time than now. Take a baby step. Set up or increase the amount going into your retirement account. Do it today. What is holding you back? If you have a question or concern, please call or email me.
Start AUTOMATIC savings NOW.
Put your savings somewhere that isn’t easily accessible to you.
Try to view savings as non-negotiable in your life.
Savings is a requirement if you ever want to live without having to depend on working and earning money. The younger you are when you learn this important lesson the easier it is to do.
I recommend that when young people start their first job they sign up for the retirement plan as soon as possible.
If you don’t see the money in your paycheck or bank account most people will adjust their spending to match that level. (It is similar to time management. Most of us will use the time we have allocated to a job. (See the “Big Rocks” story >. Savings must be one of your big rocks and something that you prioritize first.
Even if it is a small amount, start saving something because it will gradually build.
Unless you are self-employed, most companies have retirement plans. Please make sure you are saving up to whatever your employer is matching. If you are not, you are losing or giving away free money that is yours to take. Who doesn’t want free money?
Log on to your company retirement plan website and increase your retirement savings percentage. If you are self-employed, set up an automatic transfer from your checking account into a retirement account. If you hit the limit and you want to save more, set an automated transfer from your checking account too.
I hope you stopped reading this article and actually did this.
I know that may be wishful thinking.
Many people don’t save because they think it is too hard or too painful. We all have a “present bias” where we will choose today over tomorrow every time. The future does not feel as real as now. So it is hard to save for the future. It is easy to put off. We know we should do it but we don’t. Knowledge is nothing without execution.
If you don’t feel comfortable making the jump to your full desired savings rate or feel like you need everything that you earn to pay all your bills, an alternative is to set your savings to a minimal amount now (i.e. 3%) then with every raise you get you increase your savings. You were living on that amount before so you should be able to still live on it and save your raise. This often feels easier and less painful for many people.
60% of larger companies are now offering automated increased savings plans called Save More Tomorrow (SMarT). Benartzi and Thaler of the UCLA Anderson School of Management came up with a system similar to what I described above, only they automate it for you. (Benartzi has a TED Talk called “Saving for Tomorrow, Tomorrow” that you may want to check out). You commit to saving more in the future but only when you get a pay increase will your savings rate increase. So with each raise you save more automatically and it doesn’t feel like a loss since you never had that money in the first place. Ask if your company has this plan. If they don’t, talk to someone in the Human Resources department to see if they will put it in place.
If you don’t expect that your pay will increase or you didn’t get a raise, I still recommend that you increase your percentage every year on January 1st or on your birthday. Doing it gradually will make it not feel as painful and you WILL adjust your spending.
I implore you to do something. Even if it is a small amount, set up the automated savings today. Every small amount adds up over time. Something is better than nothing and I truly believe once you get some momentum it is easier to keep doing it (especially if it is automated).
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