To save means to set aside, keep, reserve, conserve, or stockpile. National Savings Day (October 12th) was created to drive awareness about the importance of saving. To quote Warren Buffett, one of the wealthiest people in the world, “Do not save what is left after spending, but spend what is left after saving.” He probably knows what he’s talking about.
We need to save money for a variety of reasons; we have future goals we’ll need to pay for, like a down payment for a home, sending kids to college, or a vacation next year. But we also need to save because we can’t predict the future and having a safety net of savings is an important cushion, both mentally and financially. We don’t know when we may find ourselves in a financial hardship; losing a job, having an unforeseen medical issue or some other unpleasant financial surprise. Advice to save money can be boring and often feels like the financial equivalent of being told to “eat your vegetables.” We don’t see it that way. When you save you’re actually spending on something incredibly important – your future. Saving part of what we earn now in order to secure our future (whether that’s tomorrow or 30 years from now) is one of the foundations of financial wellness.
So what’s the best way to start saving and when? The second question is easy: start now. How to do it? Well, some people start by saving all their spare change in a jar or use an app to round up purchases and save the difference. While these are good ideas to supplement your main savings plan, we recommend something a little more purposeful. You’ve probably heard the saying “pay yourself first”; it means automatically setting aside savings before paying for other things. Setting up recurring transfers to move money from checking to a separate savings account is a great way to automate this habit. It’s like automatic bill pay – but for your future. By starting early, you build yourself a safety net and get the power of compound interest over time.
- Save $500 in a rainy day account for small, unexpected financial emergencies.
- Save 3-6 months of necessary expenses (must pay things like rent, insurance, etc) as an emergency fund.
- Save for retirement. If your employer offers a 401(k) with a match, make sure you are contributing at least enough to receive the company match.
If you’re already saving, that’s great. How can you increase it? One suggestion is every time you get an increase in pay, increase your savings instead of your lifestyle (in other words live the same as you did before and bank that extra money instead of upgrading to a nicer car). Another is to reduce unnecessary spending. If you’re not spending, you’re actually saving. No matter how you decide to save, making it a habit now will pay off in the future.