My three-year-old daughter has five piggy banks. There’s a big one, for college, and smaller ones, for treats. Beyond the fact that it’s incredibly cute, we do this little ritual, dropping pennies into each one, to start a habit. She doesn’t completely understand, but one day she will, and by then saving will be second nature.
Mastering your money is about habit-building, whether you’re three or 33. If you want to eat healthier or exercise more, you start with small goals.
Throw out all your processed snacks, take the stairs instead of the escalator—we all know the tricks.
It’s the same with taking control of your finances.
But habits are slow-growing, right? If they weren’t, we’d all be in perfect shape and lounging on our sailboats by now. And it can be hard to imagine saving if you feel like you’re just getting by as it is.
So, start with small goals: Saving is a muscle; the sooner you start, the stronger you can get. Here’s how to begin.
1. Focus On Retirement
Before you make any drastic changes to your budget, make sure that you’re making the smartest savings move of all: investing in your retirement. Assuming you don’t have credit card debt and you pay all of your bills on time, every time, the next most important thing is to make retirement a priority as you’re starting to save for your future.
I know that retirement feels far off, and when money’s tight right now it’s easy to assume the you-of-the-future will deal with it, but the earlier you start to put money in a retirement fund, the more time you’re giving it to grow.
It’s not magic, it’s math: Compound interest means your money, whether it’s in a 401(K) or a Roth IRA—does the hard work for you.
If your company offers a 401(K) match, use it. Generally speaking, you should contribute as much as you humanly can.
2. Make A Plan
As with most things in life, being prepared sets you up for success. I’m obviously passionate about financial planning; I started a company devoted to it. And the reason I was able to start that company was because I had a financial plan, both for myself and for my business.
A plan doesn’t have to be complicated, and you don’t need to have a lot of money to create one. The less money you have, the more you need one. To kickstart your savings, a simple budget is key. I love the 50-20-30 plan.
Here are the basics:
- 50 percent (or less) of your total monthly income should go to critical essentials (groceries, rent, mortgage, utilities, transportation)
- 20 percent (or more) goes towards future financial goals, like paying down debt, building an emergency fund, and saving for retirement
- 30 percent (or less) of your take-home pay goes to the fun stuff, like vacations, restaurants, shopping, and entertainment
If the numbers need to be shuffled in a given month, deprioritize this bucket list.
Most critically, don’t expect to reach all your savings goals overnight. But once you’ve created these categories and start faithfully contributing to each, you won’t even feel the sting of saving. In fact, you’ll feel so in control of your money and your life, you can stop worrying about it. Which brings us to…
3. Automate It
To the extent that your bank account allows, set automatic deposits so that the money is whisked out of your paycheck and into your savings. (Many banks will let you set up automatic transfers, or use an app like Acorns or Chime.) Out of sight truly is out of mind, so you won’t even miss the money you never knew you had.
One caveat: Don’t set your budget and forget it. At some point in the next few years, you’ll come into more money. You’ll get a raise, or a new job, or move in with a significant other and cut your expenses in half.
When any of those things happen, revisit your budget. Make sure that you’re still saving the right amounts of money, and since you did such a rock-star job of living off your old income with your old expenses, pretend you never got that raise and put the extra towards—you guessed it—retirement.