Since 2008, many Americans have found it difficult to save. Most people have been more focused on obtaining jobs or keeping their existing jobs and homes. Therefore, trying to save money became less of a priority. Now that we’re recovering from the economic downturn, it is essential that we retrain our mindsets and our attention back on rebuilding our financial positions, which includes increasing our savings.
You can’t have financial success without having money in a savings, investments or bank account. Those of you who think you are saving by stashing your money away at home under a mattress or shoe box, need to think again. You should know that these methods are the least effective ways to accumulate wealth. Unfortunately, your mattress can’t apply interest to your money. This method of savings doesn’t help grow your money or improve your financial position. If you have $1,000 today, if you do not add to that $1,000 you will have that same $1,000 next year at 0% interest. Oppose to putting that same $1,000 in the bank to collect .02%* interest. The banks interest may not sound like much but it is greater than 0%.
Here are two simple and stress free ways to achieve your financial goal by starting a savings plan.
1. Pre-tax savings and investing plans
Find an investment vehicle that will allows you to save pre-tax, to maximize your benefits. Most of these types of pre-tax savings or investment vehicles are offered through your employer as an automate payroll deduction.
2. Automatic Savings with your bank
Start an automatic savings plan with your local financial institution. Arrange for your specified savings amount to be automatically deposited into your savings account. You can arrange a payroll deduction through your employer for a specific deduction amount to be deposited by your employer into a savings account at your bank where you have an existing payroll deduction. Your employer may allow you to split your payroll direct deposit into two or more accounts. For example, your $1000 net pay check, that will be deposited into your checking account, can now be split between your checking and savings account. You can specify that $25 of the $1,000 goes to your savings account. This would leave a net deposit of $975 going into your checking account. These automatic deposits can occur every pay period, monthly, or whenever you decide, that is allowed by your employer.
You can also arrange and automatic deduction directly with your bank. You may decide that you want to open a savings account and have $25 per month put into that account. Work with your bank to make this arrangement happen. Set it up one time and forget about it. It’s done. Now you are on the road of letting your money work for you.
These automatic processes reduce the stress, thought and reoccurring efforts of managing a savings or investment account. You don’t have to worry about physically making this transaction happen or forgetting to make them happen. Just think about this, if you saving $25 per month, it could help you saving $300 by the end of the year. That would be $300 more this year saved than $0 saved last year.
The goal for your savings plan should be to set aside at least 10% of your income. But if starting out with the 10% of your income is too stressful for you and may possibly put you in a more stressful financial position, start with an amount that is comfortable for you and your budget.
It is important to implement one or both of these savings plans options to gets you started with saving something immediately. Doing something is better than doing nothing.
By the end of the year, you will be happy you made these steps toward achieving your financial goals.
If you need assistance implementing a savings plan, feel free to contact me for a complimentary financial empowerment session.
I am Deletra Hudson, your Financial Educator.
*the interest rate listed is used as an example. Financial Institutions interest rates vary. I recommend you shop around and compare interest rates before making your decision.