Since I began my financial advising career, one of the most commonly heard phrases from people is, "I'm going to invest when I become wealthy." What do you think about that statement? Do you invest when you become wealthy or invest to become wealthy? You must create wealth if you did not inherit or win a lottery.
If you are more than half of working Americans, your income might be limited to the hours you can work or based on your fixed salary. You might be struggling to make ends meet and unable to save anything at the end of the month, or you may be saving something now but cannot increase savings. You may have good intentions. However, you feel like you are getting behind each month and year.
To boost your financial confidence, here are five simple steps you could take to put a smile on your future self.
Step 1: Write down your savings goal and when you need it. Without this, it's like driving in around without a destination.
Here are some templates:
I want to have $__________ in the next __________ years for __________.
I want to have $50,000 in the next five years for a down payment on a house.
I want to be able to retire at age __________, and I want to have an annual income of $__________ for __________ years.
Step 2: Calculate how much money you need to save monthly. (go to the bottom of this page to calculate)
Step 3: A New Mindset of your savings goal becomes one of your highest priority bills.
You should stop telling yourself, "When I make more money, I'll save." This attitude will never get you anywhere. Instead, treat your new goal as your new utility bill, auto loan, or mortgage payment that you must make. You must make those payments. Otherwise, you may lose access to water in your house; the bank will repossess your car or foreclose your home.
Step 4: Open an account separately for your goal.
A separate account for a specific goal offers several benefits over adding money to your general-purpose checking account.
- Enhance focus and motivation each time you contribute money into this account, making the process more rewarding and encouraging continued savings.
- It's much easier to track your progress toward your goal, and you can quickly see how much you've saved and how far you are from your target and adjust your contributions accordingly.
- Having these funds away from your general-purpose checking account reduces spending temptation.
Quick Tip: Without getting into the weeds, the separate account should be either a savings account at your bank or an investment account at a brokerage firm.
Step 5: Set up automatic transfers.
Once you know how much you need to save each month, use the "set it and forget it" approach by setting up the automatic transfer each month, per paycheck, etc.
Quick Tip: If you cannot contribute the goal amount initially, start with $1 a day or $30 a month. Starting with something small is better than being unable to do the entire amount. Then, gradually increase them each month.
Increasing your savings is a journey that requires dedication, discipline, and a sound strategy. You can significantly boost your savings by understanding where you are financially, creating and implementing a budget, managing expenses, making informed choices about savings tools and investments, and adopting a frugal lifestyle. Remember, the path to financial security is a marathon, not a sprint. Start implementing these strategies today and take a significant step toward financial empowerment.