Last October I attended a conference for those who work in the field of personal finance, called FinCon. At this amazing event, I got to meet New York Times best selling author David Bach who was one of the keynote speakers. I was also fortunate to get a signed copy of his book titled, The Automatic Millionaire. It’s a great read and I highly recommend it. It’s also a quick read as I was able to read it on the flight home. I was inspired by David Bach’s book do a better job at automating my savings and I am thankful to see progress in just a short period of time.
If you have already automated your savings, great job! You may want to look at how your current savings patterns are aligning with your financial goals. If you are not happy with where your current savings levels, now is a great time to start! The goal behind automatic savings is that it becomes a part of your budget, and it happens without you having to do anything different. It should be pretty simple to set it up with your bank and you might consider opening different bank accounts for your different areas of savings.
Here are 5 areas to consider building savings for:
$1,000 Emergency Fund. To me, this is always a great starting point for those who want to get their personal finances on track. Yesterday I shared that only 39% of Americans have enough savings to cover a $1,000 emergency. If this is you, then this is a great place to start. For those who follow Dave Ramsey, you will know that having a $1,000 emergency fund is his “Baby Step 1”. If you have extra money in your monthly budget, start by putting that money to work as your emergency savings. If your budget it short, then make some cuts… there are almost always ways to cut things from your budget (I know, I’ve done it). Here is an article I wrote on budgeting if your budget is not working for you.
Retirement Savings. Yesterday, I also shared many statistics on retirement. One of the most alarming statistics is that 45% of working age households have no retirement account assets. As someone in his 40’s, I really wish I had known more about personal finances when I was younger. I have made a good living for most of my life, and sadly, I have depleted by retirement savings on more than one occasion in the past out of ignorance and poor financial management. I always told myself I would have time to rebuild and thankfully I still do and I am. The challenge is that the one factor you can’t get back is the power of compound interest over time. Essentially, the longer you have your money invested, the more time you have to watch it grow via compound interest. No matter where you are on your journey, assuming you are still working, you can do something to increase your retirement savings and the best way to do it is via automation.
Build a 3-6 Month Savings. Having a $1,000 emergency fund is a great start to saving, but it won’t cover all that life throws your way, especially the loss of an income or major illness. After you have saved your firs $1,000, I recommend keeping that savings pattern and even increasing it when you can, to grow your savings cushion of 3-6 months of your monthly budget.
Down Payment / Large Purchase. Some people can’t imagine paying cash for a new car; other’s can’t imagine doing it any other way. Some people don’t have a problem borrowing the maximum allowable amount for a home and others could not imagine buying a home without a 20% down payment. These funds don’t just appear for these folks, but rather they plan for these expenses. If a large purchase is in your future, then having a savings account allocated for these purchases makes sense. Automating that accounts growth will get you to your goals faster.
Your Children’s Education. Student loan debt is at an all time high in the United States. Some call it a crisis, and I would agree. According to Student Loan Hero, 44.2 million Americans carry $1.48 trillion in total U.S. student loan debt. The good news is that while debt seems to be the norm in our country, it doesn’t have to be so. Edvisors reports that two-thirds of Bachelor’s degree recipients graduate with student loans, which means that roughly one-third of students do not take on student loans. It is possible! Automating an education fund for your children is a great step towards having them graduate debt free.
I am participating in the America Saves Week campaign, which is an initiative of the Consumer Federation of America, with a goal of encouraging and inspiring Americans to save. Even better, one of our lucky readers will have the opportunity to win $100 simply by taking the America Saves Pledge. In addition, you can enter to win up to $750 by telling your savings story and sharing it via social media. What better way to start your savings plan than by winning money? Click here to take the pledge and learn about the contest.
If this has inspired you to take a step towards automating your savings, I’d love to hear about it. Feel free to email me or simply comment below.
Stay Tuned for the next America Saves Week post where I will discuss building your rainy day fund.