The Power of Saving Automatically

Saving for some is similar to trying to lose weight.  You know what you should be doing but doing it is an entirely different thing.  Right now, people know that there most likely won’t be enough Social Security to help them out in their retirement.  Heck, most people even understand that Social Security wasn’t even designed to support them and yet they bury their head in the sand and take little to no action in regards to their own personal retirement savings.  It’s actually quite sad.

Did you know that when Social Security was enacted, the official retirement age was 65 and yet the average life expectancy was only 62?  That’s right.  The majority of people weren’t even thought to live long enough to collect anything and, if they did, it would only be for a short period of time.  Not only that, there were 42 workers contributing for every 1 person receiving Social Security.  Now, there are only about 3 workers contributing for each person collecting and that ratio will shrink down to 2:1 within the next decade, that is, if it even lasts that long.

What I’m trying to say is that you can’t and shouldn’t count on Social Security to help you through your golden years.  The one and the only person you’ve got to count on is you.  So when should you start saving for retirement?  Now.  I don’t care how old or how young you are.  The time to save for retirement is now.

One of the best ways to save is automatically.  What do I mean by automatically?  I mean you should set up for 10 to 15% of your income to be automatically put into a savings account for retirement.  The more you can contribute, the better.  If you can only afford a little bit each check, start where you can with as much as you can and build but get started.

Start with an Emergency Fund

The first savings account you should have is your Emergency Fund.  This is a minimum of $1,000 set aside for emergencies because stuff happens.  This fund will help empower you and keep you from putting things like a new car battery on a credit card.  Having this little fund keeps your budget on track and your debt snowball rolling.  You won’t have to borrow money from anyone anymore.

Graduate to an HS Account

I call this a Holy Sh*t Account and that’s because it’s for bigger emergencies that could come up, like a job loss.  Once I get my Emergency Fund up to $1,000, I would work like heck to get out of debt while all the time throwing at least an extra $50 into savings each month.  My HS Account has enough to cover up to 6 months of my expenses in case something catastrophic happens.  The minimum amount I would say is 6 months but let’s just say between 3 and 6 months worth of income in there or enough to cover 3 to 6 months worth of expenses.  This account can save your home if you come down with an illness that completely wipes you off your feet.  It could mean the difference between eating in a cold, dark room and having food and heat for your kids in the winter when your boss suddenly tells you they no longer need your position.  It will give you time and peace of mind to make some clear, life-changing decisions without haste or fear.  We all need an HS Account.

Finally, You Need to Start a Retirement Account

If they have a 401K at your place of employment and they do any kind of matching contributions, take advantage of that free money.  However, I highly recommend you open a ROTH IRA before you make too much money and are no longer able to do so.  I also recommend that you contribute the maximum amount allowable each year to your Roth because that money is taxed before going in and it comes out tax-free during your retirement years.  That is what you really want.  Tax-free money when you need it most.

How to Save Automatically

There are a variety of ways you can save money but the most effective and easiest way is to save it automatically.  Thousands of employers offer to pull out your money and put it in a savings account for you.  That money is taken out before you get paid so you don’t see it and hardly miss it.  This is a great way if, and only if, you are in charge of the account where your money goes.  Don’t allow your employer to handle your savings for you.  This is not a good idea.  Although matching accounts are great, you want to have access to your money when you need it and you don’t want to jump through hoops in order to get it. 

Another way is to set up your own savings account at your bank or credit union.  You can have a set amount transfer over to your savings from your checking with each paycheck like a bill only it’s going into your savings account.  Your bank or credit union will link your savings account and checking accounts together so you can do this.

Again, the simplest and easiest way to start your automatic savings plan would be to have a part of your monthly or weekly paycheck deposited into a savings account for you through your employer.  However, only if you have full and easy access to those funds.  The remaining money can be deposited in your checking account to cover your expenses.  You can start with a very small amount that will not affect your spending but do your best to budget the full 10% working up to 15% or more once you are debt-free.

I like the bank option better because it works two-fold; the first is keeping you on track for savings each paycheck and the second is acting like overdraft protection in case you accidentally spend more than you planned, like when you forget to write something down.  Linking your checking account to your savings does not give you free rein to spend those savings, however.  It is just there to protect you when you make a bookkeeping mistake.

The Idea of Automatic Savings

The idea is to have your savings deducted from your paycheck before you even see it so you won’t miss it and so you can get used to covering expenses without it.  It is playing with your mind – what you don’t see you don’t miss – but it works.  You begin saving and before you know it, you have your Emergency Fund and then your HS Account fully funded.  This will give you huge peace of mind, just knowing that you’re okay regardless of what the world throws at you. 

Just be mindful, the three accounts you are funding are meant ONLY for certain purposes and nothing else.  They aren’t meant for a new car or new furniture.  They are insurance created by you and for emergencies and retirement only.  You never, and I mean never, use that money for anything else.  Be a disciplined saver and I guarantee, you’ll have nothing to worry about when your golden years arrive.  Your automatic savings scheduled deposits will have grown into a wonderful little nest egg for you and your loved ones.  Enjoy!

Michelle R Russell

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