Save First!
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Every Thursday, I share one action, habit, or project you may want to undertake in order to improve your health, happiness, and sense of well-being.
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PROJECT OF THE WEEK
Save First!
One of the most impactful lessons I have learned about being financially secure is the importance to save first!
It's human nature to want to spend what you have available. The goal of saving first is to implement a system and structure around your savings goals, in order to take willpower out of the equation.
Getting Started
Step 1:
Decide how much you NEED to save for each category.
Below are some categories to consider:
Emergency Fund
Health Savings Account (HSA)
College Savings Account (529)
Employer Retirement Account
Roth IRA
Home Fund
Car Fund
Below are some thoughts to consider when deciding how much to save.
Emergency Fund - It's recommended that we have 6-12 months of expenses in an Emergency Fund. There is a lot of value to having 12 months available, as opposed to just 6 months. It's important to think about how much fear you have around "not having enough money" and what opportunities and risks you may be able to take if you have more funds set aside.
When everything shutdown in 2020, were you worried about money or did you feel secure financially?
Do you see yourself continuing in your same company for the foreseeable future or are you always looking for new opportunities to grow?
An Emergency Fund is a savings goal with a finish line. I would recommend deciding on a monthly amount to save. This way you can easily track your progress and feel excited about the movement towards your goal.
When reviewing your finances, it's important to monitor your average monthly expenses. As they increase over time, you do want to increase your Emergency Fund to account for the increased expenses.
Health Savings Account (HSA) - If you have a high deductible health insurance plan, I highly recommend saving the maximum amount allowed each year. There are so many benefits to having an HSA, that I would recommend factoring it into your decision when deciding what health insurance is best for you and your family. You don't have to pay taxes on the money you contribute to your HSA account and there are many health expenses that you can pay for out of your HSA account that health insurance plans do not cover. Plus, your HSA rolls over year after year, so as you get older, and you may need more medical interventions, the money is available to you.
College Savings Account (529 Plan) - If you have kids, I would highly recommend opening a 529 Plan to save for their education. This will support you in saving ahead of time for college. In addition, you do not have to pay taxes on the money you contribute.
Depending on your financial situation, you may want to contribute a set amount each month or a percentage of your paycheck. You can also ask family members to make contributions, as birthday and holiday gifts.
Pro tip: a 529 Plan is a factor when you apply for financial aid for your student. It’s seen as an asset and may reduce the amount of financial aid your student receives. It may be best to speak with a financial planner to learn more based on your income and number of children.
Employer Retirement Account - If your company has a retirement benefit, such as a 401K, make sure to contribute the minimum amount in order to get the match. This is free money!
I highly recommend contributing a percentage of your income to your retirement accounts, as opposed to a set amount. This way, as your income grows, your retirement contribution will automatically grow.
Unless you can afford the maximum annual contribution. Then go for it!
Pro tip: if your employer provides a cost of living raise each year, contribute an extra percent or two to your retirement account. You likely won’t notice the difference in your paycheck, but your retirement account will grow! For example, if your cost of living raise is 3%, add an extra 1% contribution to your retirement account.
Roth IRA - I am a huge fan of Roth IRA’s. This allows you to contribute after-tax money and then not have to pay any taxes on the earnings when you retire. While you will pay taxes on the $1,000 you contribute today, you will not pay taxes on the $20,000 it will likely earn over the next 30 years. I would recommend contributing the maximum amount allowed each year.
Today, many employer retirement accounts have a Roth option. I highly recommend considering that.
If you are not contributing to a retirement account because you don't know where to invest your money, consider investing in a low-cost S&P 500 Index Fund. The S&P 500 has a great track record over time and these funds are very inexpensive.
Home & Car Fund - Are you planning on purchasing a home where you need a down payment? Are you planning on renovating your home in the future? When do you think you will purchase a new car? I recommend saving for these types of expenses ahead of time. Keep in mind, this is different than your emergency fund.
Step 2:
Schedule automatic deposits to each one of your separate savings plans.
The key is to make this as automatic as possible.
If you are paid through direct deposit, you can automatically direct different amounts to different accounts. I would recommend directing all your savings to one bank account and all your spending money to your checking account. Set up your automatic withdrawals for each savings plan from your general savings account. For example, if your paycheck is $1,000, have that money divided into a checking account and a general savings account automatically. Then, direct money from your savings account to your 529 Plan, your Roth IRA, etc.
If you are not paid through direct deposit and you check your balance in your checking account to know how much money you have available to spend, I recommend transferring the savings portion of each paycheck to a general savings account as soon as it is deposited into your checking account.
Happy Spaces Tips & Tricks
If you have money left over at the end of the month, I would consider adding the extra funds to your mortgage, but only if you do not have personal debt. This will save you a lot of money on interest.
There is a lot of value in purposeful spending, but when there is extra money available, it is all too easy to spend it on things that have no lasting meaning.
Happy Savings!
Need Support?
If you feel excited about implementing this strategy and want some additional accountability and support to get started, the It’s All in the Planning Started Pak was designed for you!
A Note from Happy Spaces
The goal is to add value to your life. If you think this project will add value:
Estimate how long you think it will take. I would recommend doubling the time you estimate.
Look at your calendar over the next week and pick a date and time to get started.
Make an appointment on your calendar for the estimated time.
If you estimate that completing this project will take longer than one hour, I recommend doing it over multiple days. This will support you in getting started!
Prior to starting this project, take a few minutes to make a step-by-step list of EVERY action you need to take to complete this project.
It's not all or nothing. You can choose to implement only the parts of this project that add value to your life.
An Accountability Partner can be a great support in following through on your goals and commitments.
We understand how challenging it can be to implement new habits and systems. For additional support please go to HappySpacesBySarah.com.
Creating a life you don't need a vacation from! ®
Sincerely,
Sarah Weingarten
Meet Sarah
Growing up as the oldest of nine siblings in Upstate New York, I learned to use organization to create sanity among the chaos. Today, I work together with individuals, families, and small businesses to create habits, systems, and spaces that support their needs, goals, and dreams. Clients often refer to our work together as "life-changing" and "better than decades of therapy". What I love most about my work is the lasting impact it has on real people's lives. Nothing makes me happier than hearing the many success stories of clients I have worked with.