The first few weeks of 2017 have come and gone. How are those resolutions holding up? If you’re like many Americans, making better financial decisions and/or saving more money was at least one of your resolutions for this year (right after losing weight and making healthier decisions).
If you are struggling to stay committed to promises you made on January 1st, there are a few reasons why. One reason people fall off track is because they weren’t specific enough. If you make a goal too vague, it is hard to gauge exactly how well you are doing toward nearing the target. Another reason people end up back to their old ways by mid-January is because they haven’t made it a part of their routine, whether that be on a daily or weekly basis. Before they know it, it’s March and they haven’t lost a pound or saved one extra dollar.
For example, if you told yourself you are going to “save more” in 2017, that leaves a lot of room for interpretation and, unfortunately, error. Does it mean that you want to contribute more into your retirement account? Does it mean that you want to build up savings in an emergency fund? Or, does it just mean that you want to put a certain amount of money aside each week to do something nice for yourself in the future and not have to take it out of your paycheck? Having more definitive goals in regard to time-frame, amount and ultimate purpose (retirement, emergency fund, “fun money”) will help you stay on track.
To make saving even easier, read these 5 tips and start watching your account balances rise:
1. Put half of your annual bonus into your retirement (or savings) account immediately
Are you one of the lucky ones who got a big bonus or raise at the end of 2016? If so, congrats! Now what are you going to do with that money? Hopefully it isn’t already spent, but if it is, remember this for next time.
If you got a lump sum bonus, an easy way to save more in 2017 is to take half of it and put it into an IRA or your savings account (preferably one that isn’t too easy to access). Now you’ll have a head start on your retirement contributions for the year. If you put it into savings you’ll have it there in case of an emergency.
If you got a raise, you should know by now what the net increase is in your paycheck. Take a portion of that or all of it and have it automatically deposited into your retirement or savings account. We aim to get our clients to save 15-20% of their annual after-tax income. If you’re not sure what percentage you’re saving right now, that would be a great number to find out. If you’re not sure how to calculate it, I’m happy to walk you through it.
2. Maximize your employee benefits
Do you work for a company that offers benefits? If so, you’re lucky. People often underestimate how valuable a company paid/sponsored benefit plan is to them. Whether it’s health insurance, life insurance, disability coverage or a retirement plan, these can all be very important factors in your overall financial game plan, if leveraged properly.
Unfortunately, not many people fully understand what their benefits are or how they can maximize them. If that sounds like you, reach out to someone in HR and have them walk through each benefit. It’s also a good idea to speak to a financial professional who can really get into the details of how they can work for you short and long term.
3. Automate your savings contributions and bill payments as much as possible
Automate, automate, automate. The less often you have to decide whether to save or not, the more often you’ll do it. Have money taken out of your paycheck and auto deposited into a savings account on the day you get paid. You will adjust to the money not being there and enjoy watching the balances rise in your accounts without much effort.
Setting up auto pay for bills accomplishes two things. Your bills are paid on time, so you will never get hit with late fees (saving money already!) and because the money is taken out when due, you won’t spend it accidentally. Auto pay is not perfect though. Make sure to check your accounts often to double check the payments were made and get an updated balance for your account to make sure your discretionary spending is in line, which leads me to my next point.
4. Understand your “financial appetite” through a cash flow analysis
I use “financial appetite” because people hate the word budget. No one likes to be on a diet and most don’t love the idea of being on a strict budget. The reality is that there has to be control and understanding of your cash flow. Your financial appetite refers to the fact that there is a certain amount of money that comes into your world every year and a certain amount that NEEDS to go out. Rent, mortgage payments, utility bills, groceries, and so on, have to be paid in order for you to have a roof over your head and keep the lights on, but what about the money that’s left over? Where is that being spent and more importantly where should it be going? Taking a deep dive into cash flow is eye opening. Discovering that you spend $200-300 or more per month on lunch might be shocking, but at $10+/day it adds up quick. What else could you be doing with that money?
5. Tie tangible goals to your money decisions
Why do we go to work every day? Is it just to make a paycheck and then go home, sit on our couch, and stare at the piece of paper? No, it’s to take that hard earned money and use it to buy groceries, pay bills, create memories, have fun, and live the lifestyle we enjoy. If you feel like you are not living the life you’ve always dreamed of, ask yourself why that is. It may be because you haven’t defined what you’re actually saving for, which makes it hard to keep that commitment.
Money comes in and out of our bank accounts pretty quickly these days. Believe me, I know. Between recently moving, finishing a home renovation and planning a wedding, money seems to be evaporating, but because I have very specific reasons for saving (buying a house, renovating, wedding expenses) I am able to make decisions quickly and appropriately in order to stick to my goals.
For example, if you are just “saving more” this year, it will be easy to tell yourself that you could skip a week here and there to buy that new outfit you saw or splurge on dinner at a new restaurant. But, if you know that you need to save $200/week to upgrade your car that’s starting to make weird noises on the highway then it will be easier to say “no” to temptations because you have a clear picture of what the money is going toward instead of an obscure goal. Speaking of pictures, it is helpful to have visual aids as reminders, so print a picture of that new car or your dream home and put it on your fridge or desk to serve as a reminder that it is a priority.
Saving can be hard. There are always newer, more exciting things to spend our money on, but clearly defining what our goals are, how we are going to get there and what “getting there” actually looks like will make a big difference.
Questions? Great! We love them!
Contact us at Confidence@stoddardfinancial.net