By now, many have given up on their New Year’s Resolutions to eat healthier, go to the gym or remove vulgarity from their speech, but there is another resolution not to give up on so quickly – to begin (or restart) saving toward your goals. The United States Personal Savings Rate has recovered from historic lows prior to the last recession, but is still short of the long term average. Whether it is for a dream vacation, a child’s wedding, or simply for a “rainy-day,” savings is essential to the financial health of all, young and old. In an era of credit card dependency, the only way to greater financial freedom is to deliberately plan for and save for the future.
Savings is both short term and long term in nature. Earmark which accounts are short term savings accounts (the savings you have setup to cover checking account overdrafts and dining out money) and which accounts are long term savings accounts (dream vacation fund or retirement savings). Many people do not have the discipline to save as those in previous generations did, but there are numerous strategies to ensure you meet your goal(s) including the following:
- Clearly establish your savings goal(s). What are you saving for? When will you know you have met your goal? Why is it important for you to save for this goal? Not all goals have a clear dollar amount, but make it clear up front, as it will provide you additional motivation to stay the course.
- Set aside a predetermined amount to be transferred into a “special account” every time you are paid. Your bank can most likely set this up to occur automatically, or better yet, set it up with your employer using direct deposit. Alternatively, you may consider setting up regular investments into a mutual fund for longer term savings goals. The underlying point is as long as the money is not in your checking account, you are less likely to spend it on superfluous items. Begin saving an amount you know you can manage, and then gradually increase it. Many experts recommend you save at least 5% of your after-tax income.
- Your “special account” can be your workplace §401(k)/§403(b), your IRA, a brokerage account, your Christmas/Vacation Club account or your “general savings account.” Depending on your situation, you may be saving in several of these accounts at once in various amounts.
- Setup ground rules for when the funds can be withdrawn from the account. If you are directing your savings to a retirement account or club account, the withdrawal penalties will most likely discourage you from prematurely dipping into the funds, but since you have increased access to your “general savings account” it is essential you set withdrawal parameters so you do not fail. Consider deactivating the ability to take ATM withdrawals from your savings account or deactivate the ability to move money online. By forcing yourself to go to a bank branch to make a withdrawal, you will resist the impulse withdrawal to purchase the latest technology gadget.
- Review your own progress towards your savings goal(s) periodically. For some this may be as little as annually, but for most it should be monthly.
The American Institute of Certified Public Accountants (AICPA) has launched the “Feed the Pig” initiative to improve help people increase their savings. It is filled with interactive tools and resources to motivate you to make a savings commitment. Please visit www.feedthepig.org. There is also a site geared exclusively towards “tweens” (and their parents/teachers) who need to learn healthy financial habits before they are bombarded with credit card offers on their 18th birthdays. Please click here to visit FEED THE PIG
By sitting down and revisiting how you are intentionally spending the money you work hard for and establishing a savings strategy, you will not only keep a New Year’s Resolution, you will increase the level of control you have over your finances and will feel significantly more empowered and gratified when you can comfortably pay for your dream vacation, or your child’s wedding, or the latest life-changing technology gadget…with CASH!
Please contact us to learn how a regular savings plan is only a part of our Chronos Wealth System.