Managing Your Savings Wisely |
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In a world of options and a sea of change, making the best decisions on how to manage your savings can be a daunting task. You might decide that you need liquid savings for more immediate projects, responsibilities and goals. But where there's liquid, there must also be solid. It is important to balance your short-term goals with your long-term goals, such as planning for retirement - even if it is decades away.
Decide what you want. Define your goals
Which of these items are in your future: a home, a car, an education, medical emergencies, elder care, your retirement? Managing your savings is very much like running a business. You need to define your short- and long-term goals and come up with a strategic plan for getting them done.
You may have a big list, but don't let the idea of managing your savings intimidate you. With the right information at hand, achieving this important goal is within your grasp.
Read this three-part series on Managing Your Savings Wisely and develop a succinct strategy for staying on top of your assets - and for maximizing your financial growth.
Part 1: Pay Yourself First
If you're not going to look out for your assets, who will? The concept of paying yourself first works best when you make it automatic. Decide how much you want to save or invest each month. Then let the bank automatically transfer money from your checking account into whatever savings or investment plan you choose. If you don't have to think about it each month, this kind of forced savings will happen no matter how busy you get.
In David Bach's best-selling money guide The Automatic Millionaire he states, "When you earn a dollar, the first person you pay is you...put a minimum of 10 percent of your gross income into a pretax retirement account." (Such as an IRA.)
Money experts agree that if you pay yourself first at the beginning of each month, as opposed to the end of the month when there's not much left, you force savings. Let's say at the beginning of next month you pull out $10 and put it in a savings account that you have earmarked for just that - savings. Little by little you'll be earning interest.
But where do you find the extra money to save? Bach identifies a simple thing called the 'latte factor.' How much money do you spend on lattes and coffee - or some other little luxury - each day? How much of that could you use to pay yourself first? Examine the 'latte' moments in your day-to-day life and you're sure to find innocuous ways to save.
Quick Tips for Sock-Away Savings
- Take it one day at a time. Gather up the loose change in your purse or pocket. Pull out all the singles. Skip the car wash. Each day find one teeny-tiny way to save even the smallest amount, and it will add up.
- Stash away reimbursement checks. The next time your employer pays you back for business expenses, put the money in a savings account and not your checking account where you're sure to spend it again.
- Take a 'need/want' reality check. Before you make your purchases pause and ask yourself, "Do I need this or want this?" Skipping a 'want' every now and then will rack up the savings over time.
- Take an 'interest' in your money. Shop around for the best rates on CDs and savings accounts. You may think 1 or 2 percent doesn't matter much now, but over time these little figures add up.
Paying yourself first is a simple concept that anyone can do, if you start small and simple. Once you make the process automatic, saving a little each month will become one of the best habits you've ever developed.