Back to basics: Prioritize your savings

Wes_Moss-for-Web-smaller-fiCertified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest blog will appear here every Monday.

Back to Basics: Prioritize your savings

Every working American has at least two jobs these days.  In addition to working for a paycheck, you and I need to work equally hard to save for retirement.  That’s because the responsibility of funding your golden years has shifted from big business to the individual. While my grandfather’s generation was able to rely on their employers and/or government to fully support their retirement through pensions and social security, today’s worker is largely on his own.

As we’ve discussed, saving a minimum 15% of your net income is crucial to financial security and a secure retirement.  That may seem like an impossible goal given all your other obligations – the mortgage, taxes, kid-related costs.  But I’ve seen people at all income levels reach this critical level of savings.  How?  By prioritizing their savings goals.  These people built their financial life around saving, and made sacrifices whenever necessary in order to fulfill their long-term financial plan.  Here are some lessons from these successful savers:

Set Goals:  It’s hard to reach a destination if you don’t know where you are going.  Decide how much you need to save for each of your long-term objectives – an emergency fund (six to twelve months of living expenses), retirement, college for the kids.  Then decide how much you want to set aside each month in order to meet those goals.  This is the prize – keep your eyes on it, always.

Budget: Many people view a budget as a straightjacket that limits their freedom.  In reality, it’s a powerful tool that gives you control over your money.  A carefully crafted budget (or a simple one for that matter) allows you to track your spending to ensure that you are living within your means, spending wisely and making progress towards all your financial goals.

You don’t have to use fancy budgeting software to create a budget.  I’ve seen lots of people use old fashion graph paper and a pencil.  My budget is complete with ONE, simple page in Excel… How you do it doesn’t matter!  What does matter is that you start tracking and controlling your spending and savings today.  I guarantee you will get more than one nasty surprise as you discover how you are actually spending your hard earned money. But unearthing those ugly realities allows you to address them and re-direct your money into more productive uses.

Automate: This is a great way to impose discipline and minimize pain. Once you have decided how much you need to be saving – emergency fund, 401k, college fund  – arrange to have those funds automatically deducted from your paycheck or checking account.  Your employer’s Human Resource department can help set-up automatic contributions to your 401K.  Your bank almost certainly has tools that allow you to automatically transfer money into a savings or IRA account.

Getting to ‘15’ – Armed with your new budget and savings mindset, you might discover that you simply cannot save 15% of your income (at least for now).  Fortunately, there are two proven answers to this one problem – generate more income and/or cut your spending.

There are countless ways for the properly motivated person to bring in more money  — get a better paying primary job; ask for a raise; take a second part-time job; start a sideline business.  The opportunities are limited only by your determination to achieve your objectives.

For many Americans, cutting back on the non-essentials and luxuries is almost as tough as trudging to a second job.  But learning to do with less offers many benefits, including the reduced stress that comes with living a simpler life, and what writer Tom Robbins calls “the Zen-like peace of having money in the bank.”

Wes Moss is a certified financial planner and is the Chief Investment Strategist at Capital Investment Advisors in Atlanta. Moss is also the host of “Money Matters” on AM 750 and now 95.5 FM News Talk WSB on Sundays from 9 a.m.-11 a.m. An author, “Apprentice” alumni, husband and father, Moss is committed to helping Atlanta’s citizens with financial health.

8 comments Add your comment

Jam

September 27th, 2010
8:34 am

If more people would use Quicken to actually see where their money was going, maybe we all wouldn’t be so leveraged! When I use Quicken, I see how much I am actually spending on things I don’t need and end up being sub-consciously stingier on these items. I love comparing my spending from year to year to watch my habits. It actually ends up being somewhat of a challenge to myself to do better the next year.

Mark

September 27th, 2010
9:31 am

I know they always say not to give up retirement for my kids, but I hate thinking that they will have so much debt right after school. What comes first 401k or college funds?

Wes Moss

September 27th, 2010
10:06 am

It would be fantastic if your children came out of college or graduate school with no debt…however, by the time they finish school, you should already have an eye on retirement. That means that you have less time to finish building your nest egg, and less room for error. So for most of us on a path towards retirement, keep YOUR savings goal as priority number 1.

Wes Moss

September 27th, 2010
10:19 am

Contributing to College Savings: If your retirement savings budget is on track, and you are able to add in additional savings that will help pay for your children’s college – a 529 plan is a great option. In fact, the state of Georgia has a very strong program. You can access the GA plan directly without having to go through a broker or financial planner! Visit http://www.path2college529.com/ for more information.

Mark

September 27th, 2010
10:37 am

Thanks for the advice. You mean nobody will give me a loan to go to the Caribbean during retirement?!?!

Delvin

September 27th, 2010
10:47 am

I want a savings account very badly. Wes, can you loan me a little money to get it started?

HP

September 27th, 2010
12:09 pm

Good advice. Thank you.

For those folks who stay up at night worrying about the debt their children might incur for school – stop. Please. I graduated from college not so long ago. I have student loans. I will be paying them for a bit. I am okay with it. I am not sitting around, mad at my parents for decimating their retirement savings to send my butt to school. Student loans are a reality for many people, and they are going to be the reality more so for my kids. I have a decent job, I own my own home, I have paid off two cars, I save and I still pay my student loans. We go on nice vacations and do things for the kids. No one’s life ends because they have student loans.

Tinytam

September 27th, 2010
1:54 pm

Great advice! All of this information is super helpful and very motivating. I want to try to budget better and certainly save more. What is your suggestion for those of us who routinely give 10% to church/charitable causes? It’s a tax write-off but hurts my budget every month. Maybe this is a more spiritual – between me and God kind of question. I’ll keep working on my budget and tighten up where I can. Any suggestions for folks dealing with bankruptcy and rebuilding their credit? Thanks.