If you’re reading this, you’re not saving enough money.
I know what you’re thinking: “UGH another one of those articles? Aren’t there enough? I’m embarrassed enough already!”
I’ll spare you the dreadful statistics about American savings rates and net worth and the scary charts about how much you should have saved by now and oh my god that’s just for retirement and you’re also supposed to have some sort of giant emergency fund too, right? And if you have kids...I won’t say the dreaded C word but you know what I’m talking about.
Suffice to say, virtually none of us are saving enough money.
Wanting to understand ways to increase your savings is the number one reason people come to me for help. Folks are embarrassed by how little they are saving - and a little confused and overwhelmed. You’re not broke, you make a decent middle or upper middle class salary, so why do you still feel like you’re living paycheck to paycheck? Why isn’t that savings account getting any bigger?
There are a few tactics for increasing your savings rate and overcoming specific obstacles, but one of the simplest ways to do it (or anything sortof vague and painful that is on your ‘I’m-an-adult’ to-do list) - that’s making it into a background non-event. Like a set-it-and-forget-it habit.
Savings needs to be just something you do. Like brushing your teeth.
You do brush your teeth, right?
Personal finance is, frankly, not that exciting for most people! It is difficult for me to understand this as it is my favorite topic of all time, but I do faintly recall a time when this stuff was a little dry.
Some of the tasks - like saving money and keeping up with a budget - often feel like drudgery. You can either fight that and try to make it feel more fun, or you can just accept that this is never going to be your favorite way to use your money (or in the case of budgeting, your time), and opt to make it just something you do.
You know when you have a big debt like a major student loan and it’s such a big, long-term thing that the payment for it just sort of blends into the background of your life, as if it’s a bill that you owe the universe for existing? This is just something you do now.
“I run, I read Stephen King novels, and I sacrifice $598.27 every month to the student loan gods.”
It’s not something you really think about anymore, and that has a few impacts - one of them being that it doesn’t hurt as much as it used to. You probably rarely even give it much thought; a few times a year you have a passing thought, “I should pay more on that”, “I wonder how long I’ll be paying that”, “once that is paid off, we’ll be able to pay for the kids college”, “ughhhhhhhhhhhhhhhh”, or something along those lines. But in the day to day background noise of your life, it’s just a slight buzz.
How do you make savings feel more like that?
Make it out of sight, out of mind. You should think about your savings as infrequently as possible while getting started.
Every time you touch your money to make the transfer, you’re going to think about it.
Every time you see the money in the bank, you’re going to think about it.
Remove as many touch points as possible, so that there are fewer opportunities for your brain to say, “hey wait a minute, why am I saving this money? Don't I want to use this for something fun?"
So to eliminate those points, you need to set up an automatic transfer. You want the money to divert into savings as soon as possible after you receive it. If your money comes from a regular W2 paycheck, ask your payroll department about splitting the deposit - often you can put money into savings before it even hits your checking account (the same way they handle paying your taxes and retirement contributions). You’ll initially feel like you’re having a tight month, but after a month or two it’s likely you’ll hardly notice.
A quick note on where to put your savings:
I like to use Betterment for longer-term savings goals. This is where my traditional IRA (a rollover from my corporate 401K days) and my SEP IRA live (that’s a retirement account for self-employed folks). It’s super easy to use, has low fees and tax optimizations and is pretty fun to use - you can set goals and play around with some different scenarios. Use this link and get 3 months for free. These are investments, though - so not without risk! Think carefully about what money you are putting here. Some of your money should stay in traditional accounts.
For shorter term savings like your initial emergency fund and general purpose rainy day funds, I’m a big fan of using a regular old bank with a plain old savings account. This can be at the same bank you’ve got your checking account, but for emergency funds I recommend keeping it at either a different bank or at an online bank. The reason for this is that you want it a little more difficult to access, and you definitely do not want it connected to your checking account in case of overdrafts. You can have an account for that purpose if you need, but that’s not your emergency fund. I recommend and use Ally Bank and Alliant Credit Union for emergency funds and health savings accounts (if you qualify and don’t have one through work). Both have relatively high savings interest rates (north of 1% usually) and are easy to work with.
That’s all I can say on this topic without putting everyone to sleep, but if you’ve got questions, pop em in the comment box!