3 Simple Ways to Become a Better Saver
Maybe it’s a new house or maybe you want to be financial independent by the time you’re forty. Maybe you want to take three weeks off of work to go on an African Safari. Regardless, of what your dreams or aspirations are it is important as young professionals to constantly be looking for simple ways to become a better saver. Saving can be difficult at first, but with these three simple tips you can begin to create a habit around saving and that’s ultimately the key to success – consistent saving over a long-period of time.
Here are three easy ways to make a difference as you work to master saving as a young professional.
Save Out of Sight, Out of Mind
Automating your savings to be out of sight and out of mind is one of the simplest, yet best ways to accumulate money towards what’s important in your life. Take for example, the simple the step of increasing your savings into your employer’s 401(k). This continual process of savings can add up quickly. In fact, you’d be surprised at how quickly 10-20% (a really good place to start when trying to save for retirement) of your income can add up. Ultimately, the idea behind “out of sight, out of mind” saving is that it’s a lot easier to part with money you never actually saw hit your bank account.
Automating your savings to be out of sight and out of mind is one of the simplest, yet best ways to accumulate money towards what’s important in your life.
An employer retirement plan is intended to be used for long term savings, but there are also a few tricks to saving short term dollars in a similar manner. How? Have the IRS do it for you. Claim fewer exemptions on your W2. Your monthly cash flow will be slightly lower, so maybe choose to forego the extra stop at Caribou Coffee on hump day. This is not the most efficient way to save money because you won’t be earning interest. However, if the alternative is spending, this is an easy way to force yourself to save more in the short term. Come April 15th, you will likely receive a tax refund in a lump sum. You can then put it straight towards your upcoming down payment on a new home or a family vacation.
Create Accountability for Yourself (Hint: Have a Budget)
Defining a budget and sticking to it is extremely helpful for controlling your expenses. The important thing is that creating and tracking a budget doesn’t have to be a tireless exercise either. In fact, there are multiple options available to you, so play around with a few apps and websites to figure out which works best. The Lifewise eMoney platform, for example, available through Lifewise Learn can make the process of budgeting and monitoring your spending almost effortless (for free!).
The Lifewise eMoney app and many of the other third party applications have safety and security provisions in place, allowing you to link your bank accounts and credit cards securely. In the case of Lifewise, the platform pulls data from various banking accounts and credit cards and then classifies each of your expenditures in order to track your spending against your defined monthly limit.
Whatever your method for budgeting is it really doesn’t matter, as long as you start and continue consistently. Some young professionals use Excel and export all of their transactions each month to review each one, while others find it easier to leverage technology to streamline the process. In the end, simplicity is oftentimes the best, which is why a simple rule of thumb can go a long way. For example, try saving 20% of your income (or paying off debt), you’ll ultimately pay roughly 30% in taxes, and then you can spend the remaining 50% on whatever it is that you want!
Pay Yourself First
If you aren’t the budgeting type all is not lost. An alternative option would be to systematically transfer a set dollar amount from your checking account to some type of savings vehicle (i.e. IRA, Roth, savings account) on a monthly basis. This is a similar savings strategy to contributing to your 401(k) in that it’s consistent. However, it does require slightly more will power to actually see the hundreds of dollars leaving your bank account without giving in to the temptation of making a withdrawal.
This savings strategy is called “paying yourself first,” because once you’ve fulfilled that predetermined monthly savings commitment, anything goes. The rest of that paycheck is yours (provided you have access to a liquid emergency fund). Go on a weekend getaway, eat out with friends, or find any other way to spend what’s leftover in whatever way will maximize your happiness, again, as long as you are paying yourself first by adequately saving to meet your most important goals in life.
Unfortunately there is no secret bullet when it comes to being a great saver, but many of the best savers will implement all three of these strategies or at the very least some combination of them. So whatever strategy you use try to strive to put 10-20% into your 401(k) for long term, retirement savings. On top of that, proactively save a set dollar amount into a short and/or mid-term savings vehicle. Lastly, try to follow a budget that’s right for your lifestyle. At the very least, it will help you to be conscious of how you’re choosing to spend your hard earned money. The more disciplined you can be in your savings strategy, the more opportunities you are going to make available for yourself.
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