How to jump start a savings strategy: a primer

Recently, I have read in a number of financial publications that as many as two-thirds of Americans do not have good savings habits. Being a disciplined saver is an important way to make sure you’re financially secure and prepared for life’s critical moments. There are three basic questions to ask yourself when it comes to saving money: Where am I now? Where do I want to be? How do I get there?

Although there is no magic formula, there are some practical tips that can give you a jumpstart toward reaching your financial goals:
• Establish a goal: As Yogi Berra once said, “If you don’t know where you are going, you might wind up someplace else.” To implement your savings goals, decide where you want to go, how you will get there, and how much time you have. Setting goals and having a plan is essential to ensuring that your financial objectives can be achieved. Whether you are planning for college, a home purchase, retirement, a trip, or just trying to be more financially secure, establishing goals provides motivation to accomplish your objectives.

• Create a budget and stick to it. Set up a budget of weekly, monthly, and periodic expenses and be disciplined in tracking and checking it routinely. Use your budget as a tool to make sure that you are staying within the financial parameters you have established. If unexpected expenditures arise, adjust your budget as necessary in order for you to stay on track in meeting your savings goals. It is important for you to be aware of how much you are spending and what your money is being spent on. Be careful to not have too many priorities while managing your budget; it will make things seem overwhelming. Pick three to five high priority items in your budget, create action plans to achieve them, and then focus, focus, focus.

• Pay yourself first. An important practice to increasing your savings is to compensate yourself first. Deposit the money you want to save into a designated savings account before you begin paying any bills or fulfilling other obligations. While doing so, think about the ways your money can earn more money such as savings accounts that pay you interest on the money you are saving. Paying yourself first and having the money you save go into a separate savings account that you will not touch is essential to starting yourself on a proper path to reaching your savings goals.

• Take advantage of your workplace retirement program. Retirement savings often begins through a workplace retirement plan such as a 401 (k). Contributions not only reduce your taxable income now, but they also help your investments grow without the headwind of taxes, until you begin your withdrawals. In some cases, your employer will match your contribution, which would therefore increase your investment amount even more.

Any employer contribution represents “free money,” so be sure to at least match your employers contribution rate in your 401 (k).
Other considerations:

• Find a Free Checking Account: Having the right type of checking account can keep a lot of hard-earned money in your pocket every year. “The average interest-bearing checking account charges a monthly service fee of $14.64 and requires maintaining a balance of nearly $6,000 at a near-zero rate of interest to avoid fees, according to a 2013 Bankrate Checking Account survey.” To avoid this, look for an account that charges no monthly service fees or per transaction fee and doesn’t require a minimum balance.

Choosing a savings strategy that works for you can be a bit overwhelming. Set aside the time to review and manage your financial affairs, develop a simple and straightforward set of objectives, and stay focused on achieving your objectives. If you make the commitment to a savings strategy, some day you’ll be glad you did.

Edward Merritt is the president of Mt. Washington Bank. Sources used in this presentation: choosetosave.org and bankrate.com.


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