When Warren Buffet talks about money, people listen. And they should; he’s one of the richest people in the world and widely regarded as one of the most successful investors ever.
“Do not save what is left after spending, but spend what is left after savings.” — Warren Buffet
This idea is so important and so difficult for many of us to get right. We see it over and over again; when asked how they are saving and investing for the future people say “I try and put away whatever I have left at the end of the month.”
The better (and yes, harder) way, is to make your future a first-class priority. We call it “paying yourself first.”
The pay yourself first philosophy reverses the usual pattern of spend. You start each month by saving first. That saving could be a contribution to a retirement account like your 401(k) or an IRA, or moving money to a dedicated savings account. Consider this saving a monthly “bill” and pay it, just like you do rent or an electric bill. If there’s money left after you’ve paid yourself and all your bills, that’s what you spend if you want to.
So, how much should you save? As much as you can.
We recommend to start with 10% of your income and work your way up to 20% (or even more if you can). If you can’t do 10%, start with 5%, or even 1% of your income and work your way up. Any amount is better than zero.
Once you have the habit of paying yourself first established, it’s much easier to increase the amount later. If you get a pay increase, that’s an ideal time to bump up your savings so you can avoid the “lifestyle inflation” that often eats away at increased income.
Once you decide how much you can save, it’s important to make it as simple as possible to stick with your plan.
Set up an automatic transfer from your paycheck or checking account into your savings vehicle (savings account, 401(k), etc). You make the responsible choice once, and then it happens automatically. You won’t have to remember to do the right thing every month.
When should you start? Now, as soon as you finish reading this.
Time can be on your side if you act now. Want more helpful advice? Head to the dashboard and start a chat with a BrightDime coach today!