A while back, I revealed the great wisdom of the ages, the secret key to building wealth. Just for the record, here it is again:
Spend less than you earn.
Sure seems simple, at least here on your computer screen, doesn't it? All you need to do is save some portion of every paycheck. But if you've never been good at saving, you've just finished paying off debt, or you're starting your first "real" job post-graduation, the idea of saving on a consistent basis might seem daunting.
It can seem even more daunting once you try to get started. Many recommend putting aside three to six months of expenses in a rainy-day fund. But while that may be valuable, it's awfully hard. Consider: If you save 10% of your monthly paycheck -- a worthy and ambitious goal by any standard -- saving up three months' salary will take you two and a half years.
And while the goal of an emergency fund may be a good one, it's not exactly motivating. It's not like saving up for something tangible, like a vacation or a new car. There's no real gratification. No wonder so few people ever get started saving.
And yet, as I said above, saving is the key to building wealth. What to do?
A real plan for new savers
As I see it, the keys to starting a successful savings program are these:
- Start small. Saving 10% out of every paycheck is a great goal. But if you're in your first job out of college, or things are tight for you right now, that can seem like an awful lot of money. Compared with not saving anything at all, $100 a month is a great goal, too -- especially when combined with a commitment to pay off your credit cards in full every month.
Use the tools that make it easy to save. Nothing is easier than saving for retirement via a workplace savings plan like a 401(k) or a 403(b). The money comes out of your check before taxes, so you may not even miss it, and most employers will match some percentage of your contribution. And yes, saving for retirement counts! Want something a little simpler and nearer-term? Many banks, including major banks like Wachovia
(NYSE:WB)and Wells Fargo (NYSE:WFC), offer simple savings tools that automatically transfer a set sum from your checking account to your savings account every month. And some small banks and credit unions still offer old-fashioned "Holiday Club" or similar savings programs aimed at new savers or folks of modest means. Generally, you can contribute very small amounts -- as little as $20 a month -- which make these plans feasible for just about everyone. But no matter how you start saving, once you amass a few thousand dollars, start thinking about investing it in an index fund.
- Include a near-term goal in your savings plans. Definitely save for retirement, and definitely start building a rainy-day fund. But, especially when you're just getting rolling with this saving thing, it's important to have a tangible near-term goal as well. Is there a trip you'd like to take, or a gadget you'd like to buy? Instead of just throwing it on the credit card, save up for it. Not only do you avoid taking on debt, it's great practice -- and you get a guilt-free reward at the end.
One last thing. That emergency fund? There's no doubt that it's great to have. But while you're getting your savings strategy rolling, don't lose sleep over it. As long as you're committed to paying off your credit cards every month, those cards can serve as a reserve fund -- for true emergencies only, remember -- until you build a larger base of savings.
Smart money-saving tips can help you put aside even more every month. For some great ones, check out Motley Fool Green Light, our personal finance newsletter. Green Light co-editors Dayana Yochim and Shannon Zimmerman offer hundreds of dollars' worth of money-saving ideas every month, guaranteed. A 30-day all-access free pass is yours for the asking.