Financial planning is all about setting goals and saving the money needed to fund those goals. Yet saving can be challenging, and Americans have historically struggled with the concept. In fact, a 2019 Federal Reserve report found that an alarming portion of Americans have little or no money saved at all.
Want to save more money? Here are some steps to make it easier.
Plan your Budget
The first step to saving more is to do some budget planning. An effective budget plan doesn’t have to be complex. You should have three major categories: income, saving, and spending.
Start by adding up your income sources, and then add up all the places where that income goes. You can do this by tracking your spending over a given time, such as one month. Break your spending down into categories such as housing expenses, groceries, and insurance. Income taxes can be a spending item if you make tax payments or a reduction in your income if all your taxes are withheld from your income.
Set your Saving and Spending Goals
With your income and spending measured, it’s time to set your saving goals. The biggest goals to save for are typically long-term goals such as retirement or college education funding. However, shorter term goals such as paying off student loans or building an emergency fund can be even more important, as they can pave the way for success with your longer-term goals.
Consider getting professional help to set your savings goals as part of an overall financial plan. The most challenging part is finding room in your budget to accommodate the savings you need. A great strategy is to “pay yourself first” by having savings come directly out of your paycheck or by setting up an auto-debit from your checking account.
Choosing the Right Accounts for your Goals
You can boost your savings goals greatly by choosing the right vehicles for your savings. If your employer offers a traditional 401(k) with a match on your contributions, make sure you invest at least up to the match to take full advantage of that free money. Beyond the matched amount, a Roth 401(k) or a Roth IRA is another excellent retirement funding vehicle.
There are many other vehicles well-suited to funding your specific goals.
See the attached checklist, What accounts should I consider if I want to save more? for more information on different vehicles for saving.
Making your Savings Goals Stick
Perhaps the most challenging part about budgeting is dealing with life’s twists and turns that derail you from your plans. For too many Americans, saving for the future takes a back seat to paying today’s bills.
By being purposeful with your intention to save more, you can dig yourself out of financial setbacks and move toward your desired outcomes.
By automating your savings and adopting other positive habits such as avoiding credit card debt, you can make it far more likely that your goals will stick. Approaching life changes with a save-first focus is also extremely beneficial. For instance, if you get a promotion or a raise, immediately reset your budget plan and give your savings goals a boost. Another great strategy for achieving your goals is to be accountable for them to someone else. Involve your household members in your plans, make your goals known, and celebrate your successes together. Revisit your budget plan often and make adjustments as life changes.
As one of the top financial advisors in San Diego, we help our clients succeed in their budget planning, planning for retirement, and increasing net worth. Contact us to learn more about our proven process to help you achieve clarity, confidence and direction with your finances.