Make saving money automatic (or like a game) to meet your financial goalsFARGO – The hardest part of saving, whether for retirement or a new car, is often getting started. Once you make stashing cash automatic, it can be fairly painless.
By: Sherri Richards, INFORUM
FARGO – The hardest part of saving, whether for retirement or a new car, is often getting started.
Once you make stashing cash automatic, it can be fairly painless.
The first step is defining your savings goals and prioritizing them. Second, free up money in your monthly budget to save.
Third, keep your hands out of the piggy bank.
“The tough part is not touching that money, letting it build,” says Morgan Almer, a financial counselor with the Village Family Service Center in Fargo.
WHAT TO SAVE
Savings can be divided into three major categories: long-term, emergency and goal-specific.
Long-term savings include retirement and college savings. Suggestions for how much to earmark for retirement range from 5 to 15-plus percent, but employees should always contribute enough to receive their company’s maximum 401(k) match, says Paul Jarvis, a portfolio manager and certified financial planner with Bell State Bank and Trust.
While saving for college is a priority for many parents, as Almer points out, “you can borrow money for college, but you can’t borrow money for retirement.”
Emergency savings are meant to cover expenses in case of job loss or illness. A common recommendation is to have three to six months of everyday expenses set aside in risk-free, easily accessible savings, such as a money market account.
Jarvis says a three- to six-month emergency fund is fine for someone with a stable job and fixed expenses. Someone whose income is commission-based or less dependable may want to save a year’s expenses, he says. The amount may depend largely on what makes you comfortable, he adds.
Other, intermediate saving priorities may include a new car, vacation or down payment on a house. To determine how much should be set aside for these savings goals, divide the cost of the goal by the weeks or months until you want to achieve it.
So, if you want to take a $3,000 vacation two years from now, you’d need to save $125 a month (or $28.85 a week) from now until then.
“You’ve got to keep the goal in mind. You stop thinking about that and you stop putting money away,” Almer says.
Almer suggest trying the Financial Starter Roadmap tool on The Village’s site HelpWithMoney.org, which lets people place five financial goals on a timeline and calculates if they’re on track to meet those goals and to retire.
HOW TO SAVE
The best way to save money is to make it automatic, Jarvis and Almer say. This can include payroll deductions into retirement plans or automatic transfers from checking to money market accounts.
Banks are more than happy to help customers set up additional savings accounts, Almer says. Each account could have a specific savings purpose and an automatic incoming transfer.
Jarvis regularly advises his clients to increase their retirement contributions by 1 percent each year. If they receive a 3 percent salary increase, they won’t miss it, he says. Some retirement plans can make the increase automatically.
“It’s a painless way to hoard a lot of money over time,” Jarvis says. “Set it and forget it.”
Online are suggestions for nontraditional saving strategies, that may make saving money more of a game.
One common tip is to stash rather than spend all your $5 bills. Other people collect loose change (Avoid cashing it in at coin machines to avoid hefty fees.)
Stash $20 in an untouchable envelope each week to squirrel away $1,040 a year. Or to ease into savings, increase the amount saved by $1 each week. If you start with $1 in week one, then $2 in week two, $3 in week three and so on, you’ll have $1,352 at the end of a year.
Jarvis also suggests looking for debit or credit cards that offer a “round up” savings feature. For example, his Bell State Bank and Trust debit card features Change Saver, rounding up purchases to the nearest dollar. The bank matches 5 percent of the savings, up to $250 a year.
WHERE’S THE MONEY?
So where do you find the money to save? Almer suggests these tactics to free up money in your monthly budget.
- Refinance your house. While not an option for everyone, record-low interest rates could reduce your monthly mortgage bill by hundreds of dollars. Those 62 and older may want to consider a reverse mortgage, Almer says.
- Raise the deductible on your car or homeowner’s insurance. This will reduce your premiums, but transfers more risk to you.
- Reduce your tax withholdings on your W-4. You won’t receive a large refund at tax time, but will have more money all year long.
- Switch to level billing with your utility company. You’ll pay the same amount each month, an average of last year’s usage. This can help even out your cash flow.
- Avoid hefty bank fees, switching to cash if necessary.
Readers can reach Forum reporter Sherri Richards at (701) 241-5556