Savings Strategies that Just Work

In our society of instant gratification, it is no surprise that fewer than four in 10 Americans could pay a surprise $1,000 bill from savings. Nearly one in five Americans did not save any money in 2021, according to recent data. Clearly, we have a problem with saving.

The problems with saving

What makes saving so hard? Inflation takes a lot of the blame right now, but inflation is not the only reason saving is so difficult. For most people, having too much debt and spending too much on consumer goods are bigger reasons.  When asked why they can’t save more money, the number one reason people give is that they’ve just not made saving enough of a priority.  By treating savings as a priority, even those with limited income can save money. 

We typically advise our clients that their first savings goal should be building an emergency fund. Once an emergency fund is created, there will be resources to pull from when surprise bills pop up.

Automation is a powerful tool

How can you make saving easier?  Warren Buffet said, “Do not save what is left after spending, but spend what is left after saving”.   Warren Buffet is saying that savings should be the first thing we do with our money.  Automation is a powerful tool in creating that habit.

A great example of automated savings is with workplace retirement plans such as a 401(k) or 403(b) where employees designate a percentage of their salary to be deferred to their retirement plan account. Once this deferral is set up, the agreed-on portion of the employee’s salary is automatically put into their retirement plan account, each time they are paid, without the money ever reaching the employee’s hands. This direct and automatic method of savings forces the habit of “paying yourself first.”

Automatic savings options may also be available for other saving vehicles such as a Health Savings Account.  Again, once these paycheck savings are set up, the money is directly transferred from your paycheck to the retirement or Health Savings Account.  If you don’t have a workplace retirement plan, you can set up your own automatic saving plan where money is auto debited from your paycheck and put into an IRA or Roth IRA you have set up.  This is another great way to have money go automatically from each paycheck to a retirement account before you can be tempted to spend it.

The other way an automated saving plan can be implemented is to set up automatic transfers from your checking account at a bank.  You can open a savings account at the same bank and set up a recurring transfer between accounts. 

When opening a savings account, it’s good to choose a bank that will pay a competitive rate of interest. Ally Bank or Capital One are two online banks that offer savings accounts that typically pay a higher interest rate than your brick-and-mortar bank.  An electronic link and recurring deposits can be set up between the two accounts.

Psychologically, it’s advantageous to have a savings account at a different financial institution than your regular checking account.  Even though the money can be moved easily between the two accounts, it can create a layer of separation that makes it seem harder to move to your checking account to spend.

Small steps = a better future

The “set-it-and-forget-it” strategy of an automatic savings plan does two things for you.  First, it helps you start the habit of saving regularly.  Second, it makes it easy since no thinking is required.

Even if you start out small, you are building a habit that will benefit you throughout your life.  When you get a raise, give your savings account a raise as well.  Soon you will see your accounts increasing in value and important financial goals will be accomplished.

Saving is a critical tool for investing in your future.  No matter what you are saving for, automation is the key.  As stated in an old Jewish proverb, “The art is not in making money, but in keeping it.”

At Blankinship & Foster, we can help you develop saving plans that will help you reach your goals and create the life you want to live.

About Teresa Kakadelas

Teresa Kakadelas, CFP®, CDFA™ is a lead advisor and a member of the firm’s Executive Committee. Teresa heads up the firm’s Financial Planning Team, continually identifying and helping solve financial planning issues for clients. Teresa started the firm’s “Wise Women” luncheons, designed to help clients with financial education. Teresa and her family live in Carlsbad. She enjoys traveling, cooking and spending time with her family.

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