Like so many faraway goals, it is easy to say that you’ll take care of it later. I’ll lose weight after this junk food is out of the house. I’ll see my doctor after I lose 10 pounds. I’ll write a novel when I get more free time. I can fall into this trap myself, and I have many times. When it comes to our financial health, I’ve adopted a few tricks along the way to help make our long-term savings plans stick.
Right now we’re saving for some significant long-term goals including our retirement and the boys’ higher education. Now, I need to preface this post by pointing out that I was not totally on top of starting these savings funds right away. We didn’t get serious about our retirement savings and significantly up our monthly contributions until we bought our first house (and had higher incomes), and we didn’t start 529s for the kids’ college funds until Mr. 5 year old came along. My point is, it is never too late to start. Anything you do today will help tomorrow.
Tip 1: Pay Yourself First
This has been a family motto since I started collecting an allowance. The best way I’ve found to pay ourselves first has been to never even see the money. For instance, our 401K contributors through our employers come right out of our gross paychecks. We never see the money, and we don’t count it in our budget. Our budget template only accounts for take home pay.
Another way to implement this tip is to make sure your savings are fully funded for the month before spending money on any extra expenses, like restaurants, entertainment, and clothing.
Tip 2: Increase Your Savings In Time with Pay Bumps
This tip assumes some stability in your income and would be harder to do when cash flow is unpredictable. My husband and I know what month our annual performance reviews occur each year, so we schedule our retirement savings rate to automatically go up that same month each year. This way, our savings increases before we’ve had the chance to spend any of the extra money. It helps us to avoid lifestyle creep, the effect of increasing your expenses as your income rises. Items that were once luxuries can start to be viewed as needs.
Tip 3: Set Up Auto Transfers
Our children’s college funds are paid into each month on a schedule that automatically occurs without any inputs from me. My husband and I set the amount, and then it is just paid, like a bill, every month. We, of course, have the option to throw in additional money when we want as well, but it’s nice to not have to think about it. This means money is added more consistently and is able to grow more over time.
Tip 4: Don’t Let the Pursuit of Perfection Be the Enemy of the Good
In part, I delayed in setting up college savings accounts for our sons because I was afraid I’d pick the wrong type of account that would somehow screw up our chances to save enough money for them to get a benefit from the fund. Well, you know what, we weren’t doing them any favors leaving money in a low-interest savings account. Once I figured that I should stop with my analysis paralysis, I made a choice and jumped in. It seemed like a daunting task to research, select, and start funds, but it wasn’t really a chore once I began.
My point to this post is that you don’t have to be perfect. You don’t have to have a large income to start (although that certainly helps). Any systems and tips you can implement now to start, even a little bit, will make a big difference in the long term. Experiment and find what will help you reach your goals for the future.