Saving money seems to be one of those to-do items that we all know we must attend to, yet rarely make a priority. For some people, it’s almost an afterthought. If there happens to be some extra money available in our plan to become debt-free, we might be inclined to spend it. That’s not a recipe for building financial security. Savings should be a priority.
Abraham Lincoln once said, “Discipline is choosing between what you want now and what you want most.” Those words are appropriate when trying to develop good savings habits. We all have immediate wants that cost money. But do they contribute to our overall life goals? Simply asking this question whenever we’re faced with a spending decision can help us save.
How to develop good savings habits
It’s time for you to make a decision. You can continue down the same path you’ve been on and perhaps save a few dollars along the way, or you can decide right now to develop good savings habits. That begins with modifying your spending, so create a budget before you embark on this journey. Once that’s complete, review and implement each of the following:
- Consistency: Saving $10 a week may not seem like much. But at the end of the year, you’ll have $520 in the bank. Apply consistency to your savings plan and you’ll see great results. Always budget what you can afford and never put less than that in the bank. If your finances improve, increase the weekly amount.
- Frugality: Start turning off lights when you’re not in the room. Lower the thermostat in winter. Look for sales. Clip coupons. These are all actions that will free up additional money to put into your savings account. Adopting frugal habits will eventually help you develop a mindset of frugality in everything you do.
- Discipline: Honest Abe could not have said it better. What you want now may not be what you want most. Sometimes you must decide between the two. Buying that shiny new toy today takes away from the savings plan that will give you financial security tomorrow. Discipline yourself to look at all your expenses that way.
- Restraint: Have you ever heard of the 30-day rule? It’s a savings habit where you wait 30 days before purchasing any item that could be classified as a “want,” instead of a “need.” You’ll be surprised at the end of that waiting period how trivial the purchase will seem, compared with how important you felt it was last month. Put that money in the bank instead.
- Malleability: Human beings can adapt to changes. There may come a time when you need to modify your savings plan to adjust for life circumstances. Don’t be too rigid in your decision-making when that happens. It’s OK to step back on deposits for a while if you need to. Just try not to withdraw any existing savings if you can avoid it.
Savings includes retirement accounts
Savings accounts are not the only way to save money. They aren’t even necessarily the best way. Retirement accounts contain bond funds and equities, both of which have a higher rate of return than a standard savings account. We often overlook this because 401(k) and pension deposits come out of our paycheck before we see the money.
Consider your retirement accounts as part of your overall savings plan. The IRS has maximum contribution limits for them. In 2021, you can deposit up to $19,500 into your 401(k). Try to hit that maximum if possible. If not, contribute as much as you can. Leave a few dollars for the traditional savings account just in case you need quick emergency cash.
Kevin is a former fintech coach and financial services professional. When not on the golf course, he can be found traveling with his wife or spending time with their nine wonderful grandchildren and two cats.