By Sidney Meriweather, CFP®
Associate Wealth Advisor
We all know we need to save money, right? For the unexpected trip to the ER, the unknown car problem that started last week, for the future home we want to purchase, and ultimately for our ever-impending retirement date.
However, not everyone has seen saving money modeled well. Most people are stuck between fear and greed when it comes to how they choose to handle their finances, and neither emotion ever produces a good result. How can we remove fear and greed from our savings habits, and establish healthier ones that help us handle the rollercoaster that our financial lives can be?
I want to answer just that question. There are plenty of other blogs, podcasts, and videos out there addressing how to save money, but these are the tips that have worked for me.
Save First
The first thing I do after my paycheck hits my account is transfer a portion of the income to my savings account and a portion into my personal retirement account. I don’t wait until the end of the month and see what’s “leftover” from my spending, but I make saving my first priority.
Setup Automatic Savings When Possible
When possible, I set up my savings on autopilot. From building up my emergency fund to my Roth IRA, I have an auto-draft into my savings buckets that I don’t have to think about.
Save a Specific Amount
At a minimum, I live by an 80-20 rule for my expenses. This means I give 10% charitably, save 10%, and live on 80% of my net income if I must. I’m hoping to lower the 80% category when possible and can save/give more when I would like.
Give Yourself “Fun Money” in Your Monthly Budget
While I have many financial goals that require me to save and budget, I also want to enjoy life now. I know that if I don’t allow any wiggle room in my budget, then I tend to overindulge and have regrets about my spending later. I give myself a reasonable amount of “fun” money in the budget each year so that I don’t feel guilty about going to a concert with friends or going on vacation.
I’ve been thankful for my emergency fund many times, and I believe in the power of compounding which will help me pursue long-term financial goals like retirement and purchasing my first home. While I’m far from perfect in my own savings habits, I’ve seen discipline and consistency in my own finances produce good results. And good results keep me from leaning too far into fear or greed, and what could be better than that?
For a comprehensive review of your personal situation, always consult with a tax or legal advisor.