Maybe you went to college, maybe you didn’t, but you still have a decent job with decent pay.
You have a car, nothing fancy, but it gets you around. Your place is cozy. Keeps you warm in December and cool in July. Your life is pretty good, but you still can’t manage to keep a little extra in the bank, so you survive from one paycheck to the next.
If this sounds like you, it’s because that pretty good life you’ve built for yourself is costly to maintain. The mortgage or rent, the insurance payments, the car note and the cell phone bill, all add up. Throw in a few restaurant meals and other expenses, then it’s easy to not have enough to save.
Last year, a report from the Pew Charitable Trust revealed that more than half of the households in the U.S. had less than a month’s worth of income that could be accessed if needed.
We can break this cycle. We can do better.
Talk to a number of financial advisors and they’ll suggest that our savings should have at least three to six months of income. This will act as a buffer against job loss or some other catastrophic event that might put you in a bind.
If you’re starting with just a few hundred dollars, or even less, that level of savings might seem out of reach. But, if you adjust your habits a little at a time, the money will soon pile up, said Antawan Anderson, a financial consultant who has offices in Owings Mills and Greenbelt, Md.
“The first thing you should do is always pay yourself,” Anderson said. “Then pay your bills.” He recommends stashing away at least 10 percent of your paycheck (15 would be better), no matter how much you make.
Any money left over is your discretionary income that’s available for entertainment or shopping. “As long as you paid yourself first, then you already have your savings,” he said.
By now, you may have heard that you need several pots of money. The job loss fund, an emergency fund, saving for college tuition, if needed, and, of course, there’s retirement.
All of this can seem overwhelming. Relax, it doesn’t have to be.
“I let people know that they can’t do everything at one time,” Anderson said. “And if you did, you would have no money left over to live the way most people want to live.”
So here’s a strategy on how to get started and stay on track.
Set up an account where 10 to 15 percent of your take-home-pay is automatically deposited into a different financial institution than where you normally bank, and don’t get a debit card attached to the account. Anderson suggests the bank should be a good 20 miles from your house to make it even harder for you to touch those funds.
“If you’re at the mall and you want to buy something, you say, ‘Hey, I can’t do it because I have to drive there just to get the money,’” Anderson said. He added that clients who tap the account despite these safeguards are instructed to replace the money and add another 10 percent. “A lot of times clients say, ‘I just don’t want to go through all that.’”
Once you have a solid base of six months of savings, Anderson said to keep saving, but now the money can be divided up into categories such as job loss, emergencies, retirement, and other needs unique to your circumstances.
“Over time saving becomes a habit,” Anderson said. “And once it’s formed it gets harder to break that habit. That’s a great thing, because now, you won’t take money out, and you’ll be on the right track.”
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