Start Saving Now!!! How important is saving money? Saving money is vitally important. In fact, it is one of the single most important steps to achieving most of your financial goals in life and becoming financially free. The sooner you begin to save the better of you will be later on. Having a savings in place can also serve as a form of protection during a financial crisis. A financial crisis could include any of the following: • Job Loss • Unexpected expenses (i.e. auto repair or medical expense) • Death of a family member At the core of building adequate savings is debt avoidance. A savings serves as your cash reserve or safety net when you need it. The key is to have it in place before the need arises. How Much Should You Save The rule of thumb is to save a minimum of 10 percent of your take home pay in addition to your retirement planning contributions. By doing this on a regular basis, you become used to it and accustomed to living below your means. If you are able to save more then 10 percent, you should do so. It is also recommended that you have 3 to 6 months worth of expenses saved up as your emergency fund. This amount includes all expenses, fixed and unfixed. For example, if in January you spent a combined total of $2900 on your mortgage, car note, utilities, insurance, food, credit card bill, and other expenses, then you would need to multiply $2,900 x 3 at the minimum. This means you should have between $8,700 and $17,400 saved up for emergencies. Unfortunately, the sad reality is that many people live paycheck to paycheck with little or no savings. This is not good. You should work to build your reserve as fast as possible. Automate Your Savings Most payroll providers such as ADP and Paychex provide an auto transfer feature directly to your savings when you get paid. For example, if you elected to transfer 10 percent of your after income to your savings on payday, 90 percent of your after tax dollars would go into your checking account and the remaining 10 percent would go to your savings account. It’s that simple. You eliminate the guesswork and don’t have to worry about it. Start As Early As You Can In order to truly become financially free, you will have to start saving at some point in your life. Ideally, you should start in your twenties. Understandably, income level at that age will not be as much as someone in their fifties. The key is to simply start where you are. As time progresses, your income level will increase in direct proportion to your experience and educational advancement. This means that your ability to save more will increase as well. It is recommended that you start out saving 10 percent of your after tax income. As you get raises and bonuses, if you stick to the same 10 percent savings, over time, your savings level will grow and grow. There are several benefits of starting to save at an earlier age. However, the primary reason is that you have time on your side. The sooner you begin, the more you will be able to accumulate over time. This protects you when emergencies arise. By building your savings now, you will have a larger nest egg available when you need it. There are three primary factors that determine your savings accumulation levels: 1. The amount you save. 2. The interest rate of return. 3. The length of time you save. Time is what can work for, or against, you. Therefore, the sooner you start, the better. Tips on Saving Growing your savings can take time; therefore start as early as possible. The amount doesn’t matter in the beginning. Just start some place and be consistent. Condition yourself into not missing or needing that amount. Over time, your savings will grow due to your diligence. Here are some tips on saving to get you started: • Save a minimum of 10 percent of all after tax income. • Use the direct savings account deposit feature offered by your payroll provider. • View your savings as another bill that has to be paid. • Whenever you get a raise, increase your savings amount by a half percentage point or more. • Save 10 percent of all cash gifts you receive. • Once you pay off a line of credit (car note, credit card, or mortgage), continue to pay that same amount toward your savings.
Kenneth C. Kelly is the President of Strativia, a financial management software development and services company specializing in applications for personal and business use. Strativia is the developer of Budget Forecaster, a sophisticated home budget and personal finance management software package. Website: <a target="_new" href="http://www.strativia.com.">http://www.strativia.com.</a> Contact: <a href="mailto:info@strativia.com">info@strativia.com</a>.
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