Money 101 – 3 Steps to Starting a Savings Habit

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It’s never too early (and it’s never too late!) 

One of the things that helps me feel less stressed and more balanced is knowing that financially I’m in a good spot or at least heading in the right direction.   We all have different levels of “comfort” when we think about our finances.  One person might need to have a million dollars in the bank (or better yet in safe high-interest investments) to feel comfortable while another person might be comfortable just being able to pay their bills and putting a few dollars into savings each week.

Money is funny that way. What you think would be so easily “quantifiable” because it’s a numbers thing, is really a lot more ambiguous because of how we each view money and what our circumstances are.

Don’t let your emotions get in the way of financial security

Money and finances can be emotionally “charged” topics, especially with couples. But financial issues are an important part of life and it pays to stop and consider them and get your financial house in order. That’s an important part of simplifying your life. So for the moment let’s put aside any emotional issues surrounding money that might be keeping you stuck and let’s be very businesslike about.  

I might be a little strange. O.K., stop laughing all you people who know me well! 🙂  But I always was a good saver. My dad worked at a bank and my sister and I had savings passbooks from an early age. Anyone else remember those little books with the cardboard covers that had the name and logo of the bank on them that you would take in when you deposited money and they would actually update the book by typing in the deposit amount?  O.K., probably showing my age there a bit!

Anyway…I liked my book and I liked to see the numbers in it grow bigger.  I was a kid, and we weren’t rich, so those numbers were small and grew slowly. But I was intrigued by the whole process and the idea of earning interest, (FREE MONEY!!) which back then was like 4 or 5 % on a safe and federally insured savings account — oh those “good old days”! 

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Growing your money

If, unlike me, you never really had a chance (or the desire) to develop a savings habit then NOW is the time. 🙂  If you are reading this and are 25 years old or younger I AM SO JEALOUS!!  Not because your skin is probably firmer and you don’t have those little crow’s feet around your eyes yet, lol, but because TIME IS ON YOUR SIDE and a little savings now will really add up. Why is that? Because of the power of compounding interest.  

grow your savings

Here’s a quick primer on interest. If you put money into the bank in a savings account the bank will pay you interest. There are two types of interest, simple and compound. Simple interest is where you just get paid interest on the principle (the money you initially put in). So if you deposit $1,000 you earn interest on the $1000.  Compound interest pays you interest on your principle (that $1000 you put in) as well as on the interest you made in the previous year (day or month) depending on how the account works. This may not sound like much of a difference, but it really adds up over time. Time and compound interest can make you pretty wealthy. The earlier you start the easier it is to build your wealth. If you want to play around with this a little bit, this calculator from NerdWallet can show you how compound interest can build up over time.

It’s important to get started early. But if you’re not 25 anymore, not to worry! It’s not too late to start saving and still have compound interest work for you.  

So, let’s get started. Here’s how: 

grow your money

1) Pay yourself first (part 1).

This is probably one you’ve heard before. Getting in the saving habit is the first step to financial freedom and reducing money anxiety.  If your paycheck is directly deposited into your checking account you may be able to have human resources split your check between two accounts. If you put 90% in your checking account for bills and expenses and put 10% in your savings account you may not even miss it and presto chango – you are tithing to yourself.  Your employer doesn’t do this? Not a problem. You can set up your checking account to move a certain amount of money into your savings account each month or week, depending on how your pay schedule works. Can’t save 10% a paycheck? Try doing 5%. You just need to get started.

What about emergencies?

“But,” you might be wondering, “what if I need the money??”  Well, if it’s in a savings account you can always withdraw what you need. Your finances are still liquid, you just are a little less likely to dip into that savings fund because it’s automatically separated out. Plus, your savings may make a bit of interest if you put them into an account like Ally Bank where as of this writing you can earn 1.5% APY on your savings or Synchrony Bank where you can earn 1.65% APY on your savings. No, doesn’t sound like much but if you’ve got $2000 in an account there you’ll end up with an extra $31 at the end of the year. If someone handed you $31 with no strings attached you’d happily take it, right? 

using a 401K to build savings

2) Pay yourself first (part 2).

If you are lucky enough to work at a company that has a 401K plan and matches your contributions – SIGN UP FOR IT NOW!! Sorry to be so bossy there, but really, it’s a no-brainer.  That’s free money. It’s like getting a raise. If you need to put in 6% for them to match even 1% then do it. It’s like getting a 1% raise. If you make $30,000 a year that’s $300 free bucks. If they match more than that, and many companies do match up to 3%, it just gets better. Plus, the 6% you’re putting in will likely come out of your paycheck before taxes, so you’ll miss it much less than you think.  To figure out just how much less will be in your paycheck here’s a calculator to help.

3) Find the right bank.

One that actually pays you to save with them. Yep, compound interest is the greatest thing since sliced bread. But if you look around you may find that some banks will even give you a nice cash bonus for saving with them. Free $100 anyone??

Chase bank has this offer going on at the time of this post: https://www.chase.com/checking/chase-coupon  

Bank of America is offering this: https://promo.bankofamerica.com/2018Q1GC100/ 

TD Bank is offering this: https://www.tdbank.com/checking-aff-incentive-61/ 

If you are reading this post and these offers aren’t still available just shop around a bit. You can do it online so it’s easy and fast to check out several banks to see what they are offering.  

These 3 steps take a little time and planning but can help you get into the savings habit and started on the path towards financial freedom.  Less anxiety about money is definitely a key part of a simpler & happier life for me.  

And don’t forget to grab your free Money Fix Printables Bundle by clicking here. It’s the first step to taking control of your finances so your finances don’t control you! Because money makes a great servant, but a lousy master.

Want to learn more about starting an emergency fund? Check out 11 Ways to Grow your Emergency Fund.

Want 50 more ways to save money and get out of debt faster than you might think? Check out 50 Powerful Tips for Saving Money & Getting Out of Debt

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Now that you are getting your finances in order, want an easy to follow plan to help you start simplifying the rest of your life? Check out the Seven Days of Simplicity Action Plan!

 

 

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