I’ve got some crazy dreams for my life – let me tell you. I would love to travel more, have a little bigger house, buy a pick-up again, have a small sailboat, build a strip-built kayak, go back to school for a master’s….. oh, there is so much I could do.
If you can’t tell, I can easily be a spender. Even as a ‘certified consumer credit counselor’, spending money could easily become a regular habit for me. That’s why I always appreciate clients who specifically state ‘saving more money’ as one of their personal goals. And when they say it, I have to agree, that sounds like a good goal for me too. Yeah, sure. I want to save more money too.
Continuing with our Dream Series of blog posts, let’s talk about achieving that common goal of having more money in our savings accounts. If you want it as a goal, certainly make sure you know exactly what that your goal is using the SMART goal strategy. I already wrote about in the Dream Series and you can find that post here.
Now we all would probably think the easiest strategy for saving more money is to just ask the boss for a raise and stash the extra income in our savings account. Unfortunately, that’s not likely for two reasons. First, most people can’t simply walk in and demand a raise from their employer. Second, saving isn’t about how much you make, but rather how you take care of what you have. While both reasons likely make this more than a short conversation, they also put the control and destiny in your hands. It is your future to make rather than being dependent on someone somewhere in HR-land.
Our first advice on increasing savings is to ‘pay yourself first’. So many people are on the ‘whatever-is-left-at-the-end-of-the-month plan’. They will just set aside whatever is left at the end of the month. When I ask them how it’s going, the usual answer is, “It’s not.” If we don’t dedicate those funds right up front and instead keep them easily accessible, we are going to spend them rather than save them. We have the money to save; we just choose to spend it elsewhere before we actually save it.
There are a couple of ways to get the funds separated off into your savings account. You can do it manually each month, each payday, or however you decide to schedule it. You can have the bank do it automatically so that it is taken care of and you don’t have to remember. Finally, if your employer pays by direct deposit, most employers will split your paycheck between accounts. So you tell them to pay the first $200 to savings and the rest into checking, or however you choose to split it. Then it’s done from the start and you really don’t even have to think about it.
So how much to save? Well, we usually recommend starting with your emergency fund for the rainy day that will inevitably come. For most people, that amount should be at least three months of household expenses. That’s a lot, but there is good reason. Should you find yourself without a job, it usually takes about three months to find something, apply, interview, get hired, and then work long enough to actually get paid. If you are in a seasonal profession, you may need even more in savings. If you have a high risk exposure, like driving a truck with $500 tires (that’s $500 for EACH tire) or tend to end up in the emergency room a lot, you may need more in the emergency fund.
Once you have that emergency fund in place, then you also need to start separate savings for your other goals. DO NOT raid your emergency fund to pay for the other goals. It can all be in the same savings account, but make sure you are at least mentally keeping the funds separate. This amount will vary depending on your goals and their costs.
One other way to look at savings amounts is a percentage of your income. Again, our dream is for our clients to be putting 10% of their income into savings every month. Right off the top. Right away. Start with the emergency fund and when that bucket is full, the savings contributions can run over and be saved for other goals.
Yes, I’m still human. I understand that 10% into savings may be a LOT. I just read that the average American is saving something like 3.8% of their income. 10% is a great goal to work towards, but if you can’t do that much right now, do something. Do anything. Just be making regular contributions into your savings.
There are two reasons for making a regular savings contribution even if it is a small amount. First, small amounts add up. Just check any kid’s piggy bank full of quarters from Grandpa and the Tooth Fairy. More than one parent has taken a loan from their kid’s piggy bank. Second, even if a small amount, you develop a pattern of behavior of contributing to savings regularly. Once you are just in the habit of doing it, it is easier to increase the amount of contribution little by little, eventually working up to that 10% savings contribution.
With only 40% of Americans regularly contributing anything to their savings, you are certainly ahead of the game if you are putting something into savings. But more than keeping up with the Jones’, it will help you accomplish all of those goals and dreams that you have for yourself.
If you are still overwhelmed or not sure where to start, there is help available for you. The counselors at the Center for Financial Resources not only help people in crisis, but also provide some guidance and accountability for those just looking to be more intentional. Services are offered in-person, over the phone, and by internet. If you would like some help, you can call us at 605-330-2700 or schedule an appointment online.
written by Breck Miller
images courtesy freedigitalphotos.net