Posted by Michelle Lamb on March 4, 2020
How do you save for your future self? With what’s “leftover” at the end of a month? If so, try a new tactic: Pay Yourself First.
What does that mean?
Carve off a lump of money from each paycheck and immediately send it to an account intended for a future goal. A 401(k) or SIMPLE IRA at work can make retirement saving easy – you fill out a form and voila! A chunk of your paycheck flows into a tax-deferred investment account. For those without a work plan, you can create one: an Individual Retirement Account (IRA) or a Roth IRA. Any custodian can help set up the account and a transfer from your checking account. (Note IRS limits.)
Now, that’s paying your retired self first – what about other goals? Use a similar approach and direct money into other accounts, like a child’s college savings 529 account, or a second checking account renamed for a goal like “Rental property down payment”. Just automate the transfers to occur before you’re tempted to spend.
Also, the harder it is to access your savings, the more successful you’ll be. Consider using a Money Market position within an investment account; it is effectively the same as checking but would take more steps to withdraw.
Lastly, how much? If you’re not sure, start small and set a recurring calendar reminder to increase it. (Or refer to our earlier post on budgeting.) You may be surprised how your spending can adjust – and your future self will appreciate it.