It is well known that Americans are not saving enough. Most of us, from baby boomers to millennials, will be responsible for ensuring our own retirement security as traditional pensions wane and Social Security provides only a meager supplement. Therefore it is essential to cultivate lifelong habits of saving and investing, despite the manifest challenge of setting something aside when it seems there is always month left at the end of the money.
Sometimes the hardest part of a long-term project is getting started. Here are a few ideas to help jump - start your savings plan in case you haven't already begun.
Christopher A. HopkinsWrite down everything you spend, at least for a while. This sounds like a pain (rightly), but is almost guaranteed to highlight some cash-draining habits you have probably underestimated. Even small indulgences that seem insignificant in the moment can present big opportunities to save once you recognize them. Suppose you enjoy a $3 latte every day on the way to work. Seems pretty minor in the scheme of things. But if you invested that cash every week instead, over 30 years your retirement nest egg would grow to be $60,000 larger. Most of us can find some leaks in our spending stream that could be redirected into savings but only once we catalog and identify the likely suspects.
Start slowly and advance steadily. Once the saving bug bites, it is easy to get impatient and ultimately lose momentum. New habits are built by repetition over time, so set some attainable goals and work relentlessly to achieve them before raising the bar.
Create a fund to be used for emergencies. Things happen. When living check to check, these unanticipated emergencies represent painful setbacks and sometimes even lead to desperate measures such as payday loans that make the hole even deeper. Resolve to set aside a few bucks out of every paycheck until you have a stash that would cover an unexpected car repair or a new water heater.
Review your debt. This is often the biggest impediment to saving, so getting a handle on outstanding debt and creating a plan of attack is one of the most important steps. High interest retail credit cards in particular have a way of vacuuming out your monthly cash flow if you carry balances. Tote up your debt, and tally the amount you spend each month on interest expenses. You may be astounded by how much it is costing, and motivated to work down the balances. The same is true for student loans: if you carry college loans from private lenders, find out how much you are paying in interest and devise a plan of action to whack them down.
Create a rudimentary budget. Obviously, saving involves spending less than earnings, but having a road map on paper helps to keep the journey on schedule. Don't be too concerned about intricate detail; the most important part is to have a general benchmark against which to track your progress over time. Check in once a month to review and either take a bow or make a course correction.
Take the first step. Like embarking on a new diet, it's easy to say "I'll get started on Monday." Take one actionable step today and another tomorrow, until you have gained momentum. One foot in front of the other, day after day until you are on a roll. That is how powerful savings habits are ingrained, and the sense of satisfaction is liberating once the game is on.
Next week, we'll look at some more specific tips for boosting your saving and investing plan.
Christopher A. Hopkins, CFA, is a vice president and portfolio manager for Barnett & Co. in Chattanooga.