In 1975, the average American squirreled away 17% of his take-home pay. In the four decades since, that number has plummeted to 6%, according to the Federal Reserve.
For most, that’s not nearly enough to plan for retirement or cope with a financial emergency, say experts. That’s why this month, more than 1,000 organizations across the country are banding together for America Saves Week, which runs from February 22 to 27. The campaign, which began in 2007, is designed to raise awareness of the importance of saving and to encourage people to put away more money.
“If a person wants to have a decent retirement and wants to maintain a [certain] standard of living, it’s extremely important for them to save,” says Victor Ricciardi, a financial expert and professor at Goucher College in Baltimore.
With that in mind, here are a few simple tips for bolstering your bottom line this month.
Experts recommend that everyone have at least six months’ worth of savings in their bank account to cover emergencies. But if that’s too tall an order, don’t be afraid to start small, says Katie Bryan, the communications director for America Saves, a non-profit group that is backing America Saves Week. “Make it a goal to save $500,” she says. “When you have saved $500, save $500 more.”
Everyone from your mother to your banker has said it: the key to growing your nest egg is to start early. How much of a difference can it make though? Ricciardi says that if you save $2,000 a year from age 20 to 29 and invest it shrewdly (in stocks, bonds, mutual funds, etc. with an annual return of 9%), and then never bank another penny, you would have $580,000 by the time you retire.
Bank It Right Away
“The one key to saving money is to make it automatic,” says Bryan. She recommends depositing money directly from your paycheck into your savings or investment account, which can be set up with your company’s payroll department. Alternatively, have your paycheck deposited directly to your main bank account and then have a fixed amount transferred to your savings or investment account on a monthly basis. That will force you to live on less and, hopefully, reduce the temptation to spend.
Set a Goal
Another key to banking money is to avoid wishy-washy targets, like “I really should save more.” Instead, set a precise savings goal, whether it’s $500 or $500,000. That will help you stay focused and motivated, says Bryan. People with a goal are twice as likely to be successful as those without one, she says.
Research shows that spending money triggers the same pleasure centers in the brain as drinking alcohol and listening to music, says Ricciardi. So overcoming the urge to spend is no mean feat. Ricciardi recommends you “reframe the objective.” Don’t focus on how saving money means you have to deprive yourself today. Instead, imagine how much you’ll be able to buy once your nest egg has grown.
Enlist the support of friends and family by sharing your savings goals on social media. America Saves Week, for example, created the #ImSavingFor contest. It encourages people to take a photo of what they covet and post it on Facebook, Twitter and a host of other social media sites for the chance to win $500.
Inspired to start saving? Our 15 Ways To Save $15 Per Week article has great practical tips to get you started today.
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By Andrew Raven