Above all other new year money goals, near the top of everyone’s list seems to be saving more money than the year before…or even just saving any money at all. Or perhaps making up for all the savings spent on gifts during the holidays. It isn’t too hard to get back into the swing of savings, except when your biggest obstacle is YOU.
A few years ago, I was part of a focus group at CNN that took a look at money habits and trends of Millennials. I was inspired by this video/article from CNN Money about how Millennials are encouraged to “pay yourself first” without much of an explanation of what that means.
Below, I will discuss three easy ways to get yourself on track early in the new year and beyond! Hopefully you’ll have a better understanding of “paying yourself first” as well.
1) Set Up Automatic Payments
We often forget to do a lot of things in life, but we can have one less thing to think about if you make a conscious effort to set up an automatic payment to your savings account (just like you probably already do with your monthly bills). Wells Fargo, for example, has a checking account that is linked to a savings account where for every purchase made through the checking account, $1 gets transferred to the savings account automatically. This is an easy way to never have to think about remembering to save money, especially after each purchase. One can also contribute $X to a retirement account on each pay day (which is what I do) and over time I try to increase this money, but before I budget for any bills, I pay my retirement account first. In an essence, you’re paying yourself in the future.
2) Max out your 401(k) Contributions (if you can)
Many employers (good ones) have some kind of matching program when their employees contribute pre-tax dollars into their 401(k) or 403(b) retirement plans. In an age when many people can no longer rely on company or government pensions to fund their retirement years, many are being actively encouraged to contribute more to their own retirement plans. Some even go so far as to automatically enroll their employees who forget. But the matching component is a new story. Employers will generally match 100% of an employees contribution up to a certain amount of money — like 15% of your gross salary — which if you took full advantage of that could mean 30% of your annual salary would be put towards retirement with half in the form of free money for you. The longer you put this off, the harder it will be to plan to save for retirement while juggling a mortgage and expenses for children. Take advantage of employer matching — it’s free money for crying out loud!
3) Change Your Mindset On Saving
Lastly, and this may seem obvious, but saving properly requires the right mindset. Generally what happens is that once you decide to “pay yourself first” you may feel like you have a lot less money than you did before saving. This is normal. The key is that you must accept that you need to, and can, live with less money now in order to stretch your dollars in the future. With your post-savings income, this is when you need to take a look at your money and say okay, “THIS is what I make now, and THIS is what I can spend.” Your habits can be adjusted when you have a better sense of your new perceived income, and then saving won’t feel like much of a sacrifice. As many people will learn throughout their lives, it is a sacrifice that will be well worth the effort.