Financial Fitness: Starting to Save

by Penni L Smith on January 15, 2013

Saving can be rewarding, but usually not quickly. That makes it hard to compete with the instant gratification of filling some desire now. Still, saving is the key to reducing financial anxiety and providing for the future. If you haven’t saved, or haven’t saved much, how do you start?

Coins and BillsSet Goals

The first step to beginning to save is to identify what you want to save for. If I was just beginning, my list would look like this:

  • Periodic expenses
  • Minimum retirement (company match)
  • Emergency fund of 3 months’ expenses
  • Maximum retirement
  • Emergency fund of 6 months’ expenses
  • Special wants
  • Education
  • General savings

I put periodic expenses first because they are inevitable, and failing to save to cover them just makes for tough times when they are due. We’ll talk about retirement in an upcoming post, but funding it to at least the level of your company’s match (if any) is vital. Then set aside three months’ expenses for an emergency fund. After that, you can make plans to save more for retirement, increase the emergency fund, then turn to other needs.

Make a Plan

Once you know your goals, think about ways you can achieve them. If you haven’t saved before or have saved little or haphazardly, you will fail if you suddenly try to save some large percentage of your income. Instead, start small. Maybe you can only spare one or two percent to begin, or maybe not even that. Maybe you need to start with saving $10 or $20 from every paycheck. The main thing is to get going.

After you decide how to start, commit to increasing the amount whenever you can. For example, maybe with each raise you get, you’ll set aside an additional percent or two toward your savings. Or maybe you can squeeze $10 out of the paycheck to begin, but work toward increasing it by $1 or $5 or $10 each payday. Surely you can spare $1. Again, it may not be much progress, but it will add up and will get you in the habit both of doing it, and doing it progressively.

You’ll notice that I list retirement and emergency twice in my goal list. I would develop a savings plan to reach each level step by step. I’d get the retirement savings up to the minimum, then turn to the emergency fund until I have three months’ expenses. Then as I increased my saving more, I’d proceed until the percentage I was saving for retirement reached the maximum. After that, I’d maximize the emergency fund. Of course, you need to set your own priorities and plan.

Make It Automatic

If you can, make your savings automatic as much as possible. If your company allows direct deposit, have some of the money go into a savings account. You won’t have the money in hand, so there will be less temptation. You can also create an automatic transfer with most banks, to move funds from a checking account to a savings account.

Make Access Challenging

For periodic expenses, emergency funds, and other general savings, you need to keep the funds liquid, so you can get to them as needed. Still, make it a little hard to access. I keep my savings in an online bank. Not only does it pay more interest, it takes two days to transfer the funds into my checking account, and I don’t have an ATM card for the savings. This means that I can get to the funds if I need them, but it will take a couple days. That’s enough time to allow for a cooling off period. I can use a credit card if I truly have an urgent need, and take the savings out to pay for it when it is due (but don’t choose credit if you can’t handle it–more on that later too).

Next, we’ll look at a simple way to save a few bucks.

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