Lesson One of Seven – Saving Money
One of the best pieces of information I have learned is to replace bad habits with good ones.
We all have bad habits, especially in the area of money. We overspend, we save too little, we owe too much, we don’t make enough income. All of these problems are seemingly impossible to tackle. But all big problems can be addressed by working on them a little at a time. If bad habits got you into the mess, then good habits will get you out of them.
The Saving Habit
Let’s start with developing a saving habit. When you turn right at a stop sign in your car, you don’t analyze and think about each step you take as you make the turn, you just do it. Saving money can be done the same way, but you need to develop that habit until it becomes a task that you just do.
A habit is developed by repeating a task over and over for 21 – 30 days.
So to develop your saving habit, start by putting money into a box or jar every day for 30 days. Stick the box on your dresser or bathroom sink and a piece of paper with 30 days on it and cross out each day when you put money in the box/jar.
The amount is not important. What is important is the discipline in placing money in the box/jar every day until you do it regularly. Do it when you’re brushing your teeth, shaving, picking out socks…just another part of the daily routine.
OK, so your 30 days is up and you have saved up $17.52 in spare change. Now what? You’re thinking that won’t make you rich, or get you to Hawaii.
Phase two is taking that money and opening an account and depositing it.
You can continue to deposit into your jar/box on a daily basis, and then take the week’s total to the bank for deposit.
Check your new account’s total and record it somewhere; a piece of paper, a spreadsheet, a budget program…and look at your results, so you can see your savings grow. For example, last week I had $17.52 in the account, this week it is up to $22.52. It is important to visualize your efforts on a regular basis. I like to review my accounts on Saturday mornings.
Over time as the habit becomes ingrained in you, increase the amounts you are saving. No need to jump from $0.25 per day to $100. Gradually, you will see that you are saving 1% of your wages, then 2%, then 5%, then 10%. Some people save as much as 50% of their pay. The more you do it, the easier it gets and the more effective it will get.
Motivations for Saving
Have reasons to save. What do you want to do with this money? Put it to good use; pay off debt, open an IRA, save for a house, pay cash for an inexpensive car, save for your kid’s college education.
Open several savings accounts, each with its own purpose. Capital One’s (formerly ING) online savings account makes this very easy. You can create several sub-accounts from one main savings account and give each its own name.
Remember to spend a few minutes each week to look up the current value of each account and note the progress. Don’t worry at this point in investing this money. Keep it in conservative savings accounts. It won’t make much interest, but that is OK. You want this money to be safe and be able to watch it grow. Nothing discourages a new saver more than seeing their savings drop dramatically in a stock market correction or a bad investment.
By starting with just a few cents a day you can develop the valuable habit of regular savings.
Soon, your old bad habit of not saving at all will have died and your new good habit will have replaced it. Success breeds success. The effects of this habit will branch into other areas of your finances.
Next, I will talk about money lesson #2 – saving for retirement.