I want to save, how do I start?

For many of us, building savings is one of those things we know we should be doing, but seems out of reach. When it’s hard enough to make it to next payday, how could you find any extra cash to save? Where do you start?

Three steps to start building the savings habit:

1. Write down why you want to save. There are lots of good reasons: maybe you want to buy a house, or take a family vacation, or just give yourself some breathing room and be less stressed about money.

Whatever your reason may be, writing it down is the crucial first step. Seeing your goals in writing helps make them real and reminds you what you’re working toward when it’s time to make the hard calls.

2. Figure out where your money is going now. In order to find room to save, it’s important to know how what you’re spending money on now. Is your hard-earned cash going to stuff that matters? You might be surprised!
 
Making a budget for yourself is a great way to start taking control of your spending. (And it doesn’t have to be a complicated process. We love this video on shoebox budgeting from Servus Credit Union: Click here to view)

Once you can see all of your expenses in one place, you can see what’s negotiable and what’s not. Start slow. Pick one small thing to change that would save you a little money on something that’s less important to you than your goal, and commit to trying that change for 30 days.

 Here are some examples of how quickly small changes can make a difference:
$5 per week for 10 years: $2,878.56
$15 per week for 5 years: $4,318.67
$25 per week for 5 years: $6,837.09

 (Using an example rate of 2% APR.)

If you would like to make your own calculations to see how much you need to  reach your goals, try our online financial calculators.

3. Start paying yourself first. Paying yourself first means treating your savings like your most important bill. It gets paid before anything else, automatically if possible. (Give us a call--we can set that up for you.)

It does not mean that you have to start big. Remember that change you decided to make in step 2? Maybe it saves you $5 a month. Maybe it saves you $50. Whatever the amount, write it down in your budget along with your other non-negotiable expenses like rent, utilities, etc.

As long as the question is, “How much do I have left over to save,” the answer is probably going to be, “Not much.” So we change the question: “After saving for the important stuff, how much do I have left over to spend? What can I do to make that work?”

Paying yourself first is a way of proving to yourself that your goals matter. If you can stick with your Step 2 change for 30 days, try one more. If it was too much of a stretch, pick something easier. This is all about finding what works for you.

Where do I put it?

Your basic savings account is a good start. But if you feel the temptation to raid the cookie jar, there are several alternatives that can help:

Systematic Savings Account: Similar to a regular savings account, but simplifies the pay-yourself-first process with direct deposit of your paycheck and automatic transfers of your savings every month. Allows free withdrawals only in April.

Learn more about Savings accounts

CDs: Certificates of Deposit (CDs) allow you to earn higher dividends for a specific period of time, from 3 months to 24 years. The longer the term, the more you earn on your money. Early withdrawal penalties help curb the desire to “borrow” from your long-term savings.

IRAs: An even better choice for long-term savings is to open an Individual Retirement Account (IRA). Like a CD, because your money will not be easily accessible for a long time and you will pay penalties if you withdraw the money too soon, it encourages you to let it keep growing. They also have special tax benefits that can save you money.

IRA Accounts are especially designed to save for retirement, but they also allow withdrawals for first-time home purchases and higher education expenses. You can open an IRA with as little as $100 and continue adding

Learn more about CDs and IRAs

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