When it comes to financial preparation in any capacity, managing your cash is a crucial aspect. Being meticulous about your savings will not only make things more manageable month to month, but it sets the tone for the rest of your financial future and can be a big factor when it comes to accomplishing your goals. People who are organized with regards to their savings are generally more organized in other aspects of their lives, so they typically don’t experience as much stress when thinking about their finances. Gaining control of your budget, and therefore your cash, will set you on a course towards a financially healthy life, and long-term wealth and independence.
When you receive your paychecks from work and they’re deposited into your checking account, the first thing to do is save 15% of your gross income. Having additional savings accounts online, at another bank/financial institution, can be advantageous for a few reasons.
First, it is “out of sight, out of mind;” this will make it less likely for you to dip into your savings unless it’s really necessary. Secondly, you can create subaccounts for each individual goal you have, whether it is for a vacation each year, a down payment on a home, a new car, etc. So instead of “one big silo of cash,” you can identify each specific goal and track your progress with ease. This level of organization may seem tedious, but it will help you tremendously in the long run once you have a system established. These accounts should be FDIC insured and they pay a higher rate of interest than a “normal” savings account at the big banks. You can expect to see savings accounts with interest rates around 1.0-1.5%. This isn’t the main reason to open one, but it is definitely an added bonus!
Automating this process is a critical aspect to a successful savings strategy as well. Whether it is bills coming out or contributions going in, make sure that it is done automatically so you don’t have to worry about missing a payment and can use your time to focus on other hobbies or interests! As you see your savings grow, you will start to feel a greater sense of accomplishment and comfort, and you may begin to get more serious about saving which will encourage you to put away more and more each month. A good exercise is to “survey the landscape” each quarter and if you have been hitting your marks, increase your savings rate by 1-2%. Keep doing this until you have reached a savings of 15% of your gross income, or more!
When all is said and done, you must save a portion of your income if you hope to do any “future spending.” Ultimately, most people want financial freedom, and usually the ability to retire as well. Give yourself the best chance of success by saving first, automating it, and being organized. If you would like to discuss this concept or have questions about anything with regards to your current financial needs, please feel free to contact me!
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