How do you Save?

I think of savings in two ways: forced and unforced.  Forced is participating in the 401k. When I get my paycheck, the amount going into my 401k is already gone.  I have to live on what’s remaining.  It’s kind of like the Social Security tax in that it’s taken out of my check automatically so I don’t have to worry about paying it later.  I know that I could get money out of my 401k if I really needed it, but it is fraught with a strict rules and penalties.  There’s not a good enough reason to touch that money, not a house, not an emergency.  I’d consider going BK first.  Cash is king, and I can rebuild my credit later.

Unforced savings is the difficult one because you have more discretion.  This is the one where you must set aside some amount no matter how small.  If it’s $20 a month, good.  That’s a start.  Once you start, savings can become like shopping.  You want more, so you finds ways to put more away by living on less.  Direct deposit can help here.  Have the payroll folks send the majority of your paycheck to your checking account and a slice to your savings account.  It’s an easy way to turn unforced savings into pseudo forced savings. 

I read and heard a lot on how to start a savings strategy.  Have 6 months living expenses in cash, have a 401k, have a taxable investment account, have a Roth or 529; in other words, have a lot of money already saved.  After all that, getting to a savings goal felt like too much.  My solution; start small.

I needed a gimmick.  I’d take $100 from my paycheck and put $50 in my savings account and send $50 to E*Trade.  This did two things.  It got me started on two of the recommended saving tools, and it added an extra layer between my spending habits and that cash.  Everyone dips into savings, so I wanted to divide my accessible savings into to buckets: easy to get to and harder to get to.  Over time, I built in rules on how I would use these two savings buckets.  Over time, you can build your own rules.  The goal now is get some amount of money into savings.  Use your greed to help it grow.  Think of it as leveraging one of your vices.

If fear is a good motivator for you then read the last paragraph.  If not, then it is time to have fun doing something else.

Think about things in life as inevitabilities.  You will be hospitalized.  You will lose your job.  You will get in a car accident.  These things happen to all of us, but we don’t think about them and we don’t plan for them.  They’re coming, and savings can help you deal with all of them.  Money is not the answer, but it does grease the wheels.