The purpose of Money Talk is to improve readers' financial capability with research-based personal finance information.
Friday, June 15, 2018
Savings is the Key to Financial Success
Do you want to save money? Below
are six action steps to build a base of savings:
Save a Dollar a Day- Put a
dollar a day, plus pocket change, into a can or jar. At the end of each month,
there will be about $50 to deposit into a savings account. Financial planners
advise saving 3 to 6 months expenses for emergencies but any amount of savings
is better than none.
Live Below Your Means- Track
expenses for a month or two to identify spending leaks and to “find” money to
save. David Bach, author of The Automatic Millionaire, calls these
expenses the “Latte Factor™” because many people spend $5 (or more) a day on
fancy coffees, fast food, and similar “impulse” items. This calculator can help you identify
personal “lattes” so you can save this money instead.
Make Savings Automatic-
Automate savings because people are less tempted to spend money if they don’t
see it. Automated strategies include: transferring a set amount from a checking
to a savings account, making payroll deposits to a credit union, and
transferring a set amount directly each month from a bank account to a mutual
fund or stock dividend reinvestment plan (DRIP).
Complete a Savings Challenge- Aim to finish savings challenges,
like the 30-Day $100 Savings Challenge,
15-WeekSavings Challenge, 52-Week
Money Challenge, and 50-week $2,500
Savings Challenge. Challengesprovide
a savings goal, a designated time frame, and suggested daily or weekly savings
Contribute to Tax-Deferred
Retirement Plans- Save as much as possible in a tax-deferred employer
retirement plan and/or open an Individual Retirement Account (IRA). The earlier
you save for retirement, the more time your money has to grow, even if it is a
small sum. Tax-deductible traditional IRA deposits and earnings are taxed upon
withdrawal. Roth IRAs have no up-front tax deduction but earnings are tax-free
after age 59 ½ for accounts open at least 5 years.
Earn “Free Money”- Try to
save at least the maximum amount of money that can be matched. This is “free
money” that should not be passed up. Dollar for dollar matched savings is like
getting a 100% return on an investment. When pay increases, raise your
retirement plan contribution, which can raise matched savings.Savings plans offer four benefits: employer
matching, a federal income tax write-off, ongoing tax-deferral, and automatic
deposits via payroll deduction.