Laying the Groundwork for Financial Freedom

Trying to save money can be frustrating, confusing, overwhelming and potentially depressing if you are not sure where to begin or have not been successful at reaching your savings goals. It is a challenge to build a consistent habit. Fortunately, you do not need perfection, just a practical plan and some simple tools to stick with it.

This is part one of a two-part series exploring how to start saving and what to do once you have built up your savings.

1. Automate Your Savings

Saving does not have to rely on willpower. The easiest way to save consistently is to automate the process:

• Split direct deposits: Arrange for part of your paycheck to go directly into a savings account, leaving the rest in your checking account for daily use.
• Set up automatic transfers: Schedule regular transfers from your checking account to your savings account.
• Contribute to employer-sponsored plans: Use payroll deductions to fund your 401(k) or other retirement accounts.

When money moves automatically, you are less tempted to spend it, and your savings grow without extra effort.

2. Create a Budget

A budget is a powerful tool that shows what you can afford to save while covering your expenses. Follow these steps:

• Track your income and expenses: List all sources of income and monthly bills, including fixed expenses (rent, utilities) and variable ones (dining out, shopping).
• Set a savings goal: Start small, even if it’s $100 a month or $20 a week. Conventional advice says 10% of your income. However, no budget enforcer says you have to be at 10% immediately or that you have to stop at 10%. If you can save 5%, then save 5%. If you can save 15%, then save 15%. Any percent of your total income saved is one step closer to your financial goals.
• Adjust over time: Budgets are not static. You should be reviewing them regularly to determine if your spending priorities have changed. This is a good time to find more opportunities to save money, for example, canceling a subscription you no longer use.

3. Handle Raises and Bonuses Wisely

Extra income can fast-track your savings. Use this simple strategy:

• Split raises: If you get a 3% raise, save half (1.5%) and use the other half to treat yourself. After all, you’ve earned the raise and should be able to enjoy the fruits of your labor while also setting yourself up financially for the future.
• Save bonuses: Put a significant chunk of your bonus into savings or investments. You want to avoid mentally “spending” all your bonus before you get it. One method is to think of your bonus as a financial windfall that should be saved for the future, rather than a slush fund for big spending. You will want to budget big expenditures throughout the year rather than waiting to use your bonus, e.g. vacation, home improvements, etc.

This approach balances enjoying your earnings now with securing your future.

4. Watch for Lifestyle Creep

Lifestyle creep happens when increased income leads to increased spending, leaving little room for savings. Avoid this by:

• Automatically saving any extra income.
• Sticking to your budget for discretionary expenses.

5. The First Step Toward Financial Freedom

Saving is more than just accumulating money; it is about creating choices and reducing stress. By automating your efforts, budgeting wisely, and avoiding unnecessary spending, you will set the stage for long-term financial independence. Looking for personalized advice to create a savings plan tailored to your goals? Reach out to the team at Bradley, Foster & Sargent to learn how we can help.

Stay tuned for part two of this series, where we will explore what to do with your savings to maximize its potential.