The pandemic de-railed many people’s savings plans, especially if they needed to reduce retirement savings or tap investment and retirement accounts to meet expenses. If you are ready to start or resume savings, here are ideas to consider.
“Begin With the End in Mind”
This concept, borrowed from The 7 Habits of Highly Effective People by Steven Covey, “to begin each day, task, or project with a clear vision of your desired direction and destination, and then continue by flexing your proactive muscles to make things happen.”
You can apply this concept to savings. Do you want to have a certain amount in your retirement account by a certain date? Are you saving for a car? A vacation? A child’s education? Perhaps you want to create or re-fund your emergency reserves. Know why you are saving, what you are saving for, how much you need by when, and map out a plan to get there.
Pay Down Consumer Debt – Before Stashing Money in a Savings Account
This may seem counter-intuitive when you are trying to save money, not spend it! However, interest on CDs, savings and money market accounts is currently less than 1 percent. Credit card interest rates start at 12.99 percent and increase from there. If you carry a credit card balance, you are losing money by not paying off the high interest while earning less than 1 percent on savings in a bank account. This is also true of auto and other consumer loans.
Once you have paid off these consumer loans, you free up your cash to save robustly. If you are saving for retirement and have high consumer debt, consult a financial planner on the best course of action for you.
Automate your savings.
Automation makes it easy to save regularly and to save more. Have a set amount transferred to your savings vehicle each month either directly from your paycheck or from your bank account. Having the money set aside makes it easier not to spend it. Automatic transfers also save you time and create a regular savings plan.
Cut unwanted expenses
The pandemic has given us an opportunity to reevaluate where and how we want to spend money. What did you spend money on in the past that is no longer important? Can you reduce or eliminate those expenses permanently?
Take a look through your bank and credit card statements to identify where your money goes. Don’t forget to look at your Venmo, PayPal, Amazon, and other online accounts. Look at automated payments. Are you paying for things that you no longer need, use or want? My clients Bob and Sue were paying $157 a month for streaming services. They cancelled the services they don’t or rarely use and saved $75 a month.
As you begin your savings journey, keep your goals and vision in mind. Watch the impact setting aside even a small amount each month can have. Let this motivate you to continue.
For more tips on cutting expenses and saving money, see my blog post Cut Spending and Save Money.
This blog is published to provide you with general information only and is not intended to provide specific or comprehensive advice. Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate.
