It's better to do something than nothing, especially if you start developing good habits with small steps. But those steps are only the beginning of the journey.
So it's very encouraging that the vast majority of Americans across all age groups are willing to stick with a strategy that calls for saving at least $100 a month, according to a new survey from CIT Bank. But the problem is that $100 a month is basically a toe in the water -- or more like baby steps toward saving enough for a secure future.
A resolution
CIT isn't saying that saving $100 a month will get anyone across the finish line when it comes to building an emergency fund or hitting their retirement goals. Instead, it's more about getting people to take the first step.
"From working out to staying organized, the most popular resolutions have one thing in common, their focus on forming a habit," said Ravi Kumar, CIT's Head of Internet Banking, in a press release.
The point of saving $100 a month is that you have to begin somewhere. It's reasonable to pick a manageable number and have that automatically move from your checking to a savings account each month, but that should only be a starting point.
Once you do that, it's important to actually figure out how much you should be saving. Doing that requires six steps:
- Know where your money is going. Be honest and work from big expenses like rent or mortgage, down through every dime that leaves your wallet each month.
- Set a budget. Knowing where you spend your money should help you identify easy areas to make cuts.
- Pay off any credit card or other high-interest debt.
- Figure out what you need for an emergency fund. In general, it's equal to six months of living expenses.
- Determine the delta between what you make and what you spend. If there's nothing left over each month, you have to make some changes.
- Figure out the beginnings of a plan for retirement savings. You will want to revisit that more formally once you have an emergency fund.
You have to be realistic -- it might take awhile to save six months of living expenses. During that time, you should also make sure you capitalize on low-hanging fruit like employer matches on 401(k) savings plans.
It takes sacrifice
To achieve your savings goals, you need a plan. And in most cases, you're going to need to make some sacrifices. Some of those might be minor -- maybe you notice an area where you are wasting money that's easy to fix -- but others are going to hurt.
A willingness to save is a starting point, but it's only that. To achieve your savings goals you may realize that you need to make some big changes. You might be spending too much on where you live or driving a car that's beyond your means.
To fix that, you have to know where the problem is -- which makes taking a financial inventory very important. It's also smart to recognize that it's better to make some sacrifices now than to get into real financial trouble because you have no savings. Anyone can get sick or lose a job. Planning for those possibilities can dramatically lessen the damage should they happen.