If you’re just starting out in life or maybe never established a regular saving habit, this article is for you! Many of our goals in life can only be achieved by saving for them. They’re simply too expensive to come up with the required funds on the fly.
The Keys to Saving
The #1 key to saving is to get started. Really, it’s that simple and that hard. It’s simple because putting aside $100 or whatever per paycheck is not difficult. It’s hard because it’s a new habit and humans often have trouble with changes. Another key to saving is to pay yourself first. That means, don’t save if there’s money left, but rather take your desired savings off the top and then do your other spending. Another key is to automate your savings. Maybe have your paycheck direct deposited and then use automatic transfers to immediately move the target savings into the appropriate accounts.
Common Savings Goals
Obviously each of us wants different things out of life and therefore need a personalized plan. Nonetheless, it’s common for many of us to want to own a home, send our kids to college, retire comfortably, get through a layoff (your emergency fund), replace your roof after a hail storm (your rainy day fund), take a nice vacation, replace your vehicle from time to time and so forth. Each of these goals can best be realized by saving for them.
How Much to Save
This is fairly easy to figure out. We simply determine the funds required for each goal and the timeframe for needing them. Maybe we want to take a monster vacation in two years that costs $15,000. Okay, so $15,000/24-months says we should be saving about $625 per month. Too rich for your budget, then maybe switch from a 5-star to a 3-star resort or push it out to three years. Each goal can be analyzed in this way to determine your overall savings goal. Maybe you can’t afford the total amount you come up with. That’s good to know! You can prioritize your savings goals and remember to use windfall income (bonuses, inheritance, etc.) and raises at work to increase your savings rate. No matter what the situation looks like, remember to get started.
Retirement
I dedicate this section to retirement because it requires such a large amount of money. How much you’ll need varies from family to family. However, we have found that when you start makes a big difference on how much you need to save monthly/yearly. If you’re a younger reader, that means time is your friend. You can save less per year because there’s more time for it to grow before you retire. In general, you should be saving at least 10% of your gross income for retirement at 65. A final thought on this is to remember to fund your 401(k) (or its equivalent) first if your employer offers matching funds. This situation simply offers the best rate of return due to the matching funds.
If you’d like to sit down and talk about your savings goals, or any other financial matter, we can discuss this in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.