The best money moves are usually the ones that target your big goals and make them happen. But so many people live their lives in a reactive pattern, never really making any plans for the future.
Here’s what you need to do in order to start saving for retirement, keep up with your savings rate, and avoid getting into debt.
1. Automation Keeps Me Accountable
The best way to ensure that you keep up with your savings rate is to automate it. You should have a portion of each paycheck automatically transferred into your savings accounts. If you don’t see the money in your checking account, then there’s no chance that you’ll spend it. This will also help you to quickly reach the six-and-a-half-month cushion that we recommend having in place for unexpected expenses. Think about how much you spend on packaged or restaurant meals each month. If you were to cut that in half, then you’d save a lot of money in a very short amount of time. That’s essentially what you’re doing by making this decision to automate your savings.
2. Remember to Increase Your Savings Rate
You should have a target savings rate that you’re shooting for. The best money moves are always the ones where you’re increasing your habits and changing your behavior so that they become more financially beneficial. Go ahead and set that savings rate, then stick to it. Whether you have a goal of saving 15% or 25%, keep in mind that it’s going to be pretty challenging to achieve if you don’t put some effort and energy into this. The best money moves are ones that you make with determination!
3. Think Long Term
Don’t let any of your financial goals become a short-term focus. Instead, plan for the future and remember that saving for retirement is something that requires a lot of frequency and consistency. You have to put money away on a regular basis in order to reach these goals and it’s nearly impossible to achieve this if you spend your cash on impulse purchases. How many times have you walked into a fast food place or a retail store and spent all of your money on something that you didn’t need? Don’t make this mistake!
4. Aim for the Six and a Half Month Safety Net
We’ve created a six-and-a-half-month safety net as our recommended cushion. Many people think that they can safely be able to go without any savings at all, but this is not true. You should be able to go for a week without money, but six and a half months is the absolute best that you’d want to get. Any bigger and the chance of experiencing an emergency is much higher. You never know how much money you’ll need until you’re in an out-of-the-blue situation. So, save for this first and then live off of what’s left over.
5. Have a Back-up Plan
You should always have a fallback plan in place. This will help you to avoid getting into the mindset of “I’m fine because I’ll always be fine.” We’ve talked about this concept before, but it’s worth mentioning again. We’re not suggesting that you need to be talking up an evacuation plan, but you should at least have something in place if things start to go badly. If you get into this habit, then you won’t have to be so scared of the future and you’ll start to realize that a lack of money isn’t always an insurmountable obstacle.
6. Budget for All of Your Expenses
Don’t forget about your monthly expenses! You can’t just mindlessly spend and expect to be okay. The best money moves are ones that involve careful planning. You need to look at your paystubs and separate out all of your fixed expenses. Then, you can monitor your usage and adjust accordingly. If you make a habit of tracking your expenses, then you’ll start to notice patterns and costs that you can cut back on. This is a great way to save money when you’re trying to reach some of your savings goals.
7. Get Out of Debt
Finally, we’d recommend getting out of debt if possible. There’s very little that’s worse than the feeling of being in debt and not knowing how you’re going to get out from underneath it all. It’s such a stressful way to live and you should avoid it at all costs. If you don’t have any emergency savings, then you can use the debt snowball technique to get started. It’s important to get into the habit of paying more than the minimum whenever possible.
Q) How much am I expected to be saving per month?
A) This varies from person to person, based on how much you earn, how many expenses you have, and your personal budgeting habits. If you decide to work with a financial advisor that can help you with this process, then they’ll work with you to make sure that you’re saving enough. But, if the number that they give is less than what feels right for you personally, then they’re not doing their job correctly.
Q) Isn’t having too much debt actually the bigger problem?
A) We agree that there are plenty of things that you should be keeping in mind. There’s nothing wrong with worrying about your debts or even weighing the benefits of repaying them. So, don’t feel bad about being cognizant of your debt. However, having a lot of debt doesn’t mean that you can’t save. The key is to spend less than you earn and to put the money that you do have into savings and investments.
Q) What if I have a problem with overspending?
A) This is something that we’d like to help you with immediately! Being able to follow a budget is one of the most important skills that you can have in today’s world.
Creating a budget is an essential part of good financial management. The best money moves are often the ones that require a lot of upfront time and energy. It’s not easy to stick to a savings rate, but it’s well worth the effort. You’ll feel like you’re in control of your life and you’ll be able to watch your goals come true. So, use this article as a reminder that great things happen if you put your mind to something and don’t give up!