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Saving for the Future

Saving for the future is incredibly important to our financial security, and helps insulate us from unexpected expenses as they arise. Despite the need each of us has to save, however, recent surveys of household savings in America have found that just 66% of Americans spend less than they make, and only 42% of Americans have a plan in place with specific savings goals.

It is our goal to help residents of Portage County identify ways they can secure their futures through savings. What follows are best practices in this area, and links to savings tools from reputable agencies.

Best Practices

Start small. If you are not accustomed to saving, getting started can seem like a daunting challenge. Experts agree that, for most people, saving at least 10% of what you earn should be an initial target.

Still, experience shows that if you attempt to do too much, too soon, you may well crash and give up on saving entirely. Instead, try budgeting a savings of at least 2% of your salary per pay period. Experts suggest starting with 2% because, for many of us, that is the amount we can deduct from our bank accounts without even noticing. After six months, try doubling that amount to 4%, and in another six months, increase the amount you are saving by a percentage point or two. Repeat the process until you reach your savings goal.

By starting small and staggering increases, you are much more likely to succeed in establishing good savings habits.

Automate. Another great tool to achieve consistent savings is to use automatic deductions to transfer money from your paycheck to your savings account. Many businesses will allow you to establish direct deposit percentages to various accounts through the payroll process. Setting up automatic deduction ensures that you are saving, and makes it less likely that you will divert the money you would have saved to other purposes.

Make saving a priority, and set goals. Often, when we receive an influx of cash through a pay increase, bonus, or tax refund, we don’t know where to put it. That can lead us to spend the money on something impulsively, rather than thinking carefully about future needs. As with other income, at least 10% of any increase should be devoted to savings.

Whatever amount we decide to save, it is also important to establish how we save. The best approach is to establish a savings fund for emergencies first, with enough money to cover six months of expenses. This account should be readily accessible. Once you have secured that amount, savings should be directed to long-term savings, like matched contribution plans (i.e. 401(k)s), tax-advantaged accounts like IRAs or 529s, and other investment accounts. If there’s any money left over, setting up a discretionary account for things like travel or Christmas spending is a good idea.

What are you saving for? Perhaps more than anything, knowing what you are saving for will motivate you to continue contributing to your savings accounts. Visualize what you want your retirement or your child’s college education to look like, and remember that saving now will help make that picture a reality in the future. With a little long-term planning, you can make choices that will secure your financial future and protect you against life’s unexpected twists and turns.

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