This week we cover part 1 of a 2 part series on How to Jumpstart Your Savings. SeedTrust Co-Founder and CPA, Brock gives us his take how to get started. Next week we have a special guest blogger and Pinterest favorite sharing some stellar tips on how to cut unnecessary expenses.
How to Jumpstart Your Savings
There is never a better time to start saving than now. A lot of my clients ask how can they save when there is very little money left at the end the month. It may be surprising but there are a lot of leaks in most people’s budgets. Like that $5 Starbucks Coffee a few times a month, or that $200 cable bill, or those $2.99 iTunes purchases, all of these things that we could really do without, add up.
Below is my number one initial recommendation for people who are looking to jumpstart their savings.
AUTOMATE, AUTOMATE, and AUTOMATE AGAIN
Is it impossible to save millions? It sounds like tall order, but in reality you don’t have to contribute much early in your life to have the money grow and compound on itself.
Where most money should be saved:
- 401k paycheck withdrawal. This will be the most painless method. You won’t even know the money is gone since it never hits your bank account. In addition, the tax savings already gives you a great step ahead in regards to return on investment.
- If your job does not support a 401k have an investment advisor setup an IRA that takes a monthly withdrawal. It most cases it is tax deductible giving you a return on investment similar to the 401k.
Once you have put either your 401K or IRA savings on autopilot you can start focusing on micro-saving. With today’s technology it is incredibly easy to automate this type of saving as well.
The Best Micro Saving Techniques:
- Digit: This service connects to your bank account and looks at your spending habits and income. It analyzes your cash flow needs and will make savings withdrawals at the best times for you. If it is taking out too much you can tell it to slow down or stop. Everyone I have recommended this to likes the ease of use and the way it interacts through text message. They even give you bonuses on the money you save.
- Acorns Saving : This connects to your bank account and invests money on your behalf. Every transaction that you make will be rounded to the nearest dollar and then deposited to your investment account. Acorns does the investing for you and generates an extra return.
If automation isn’t for you, the last resort is to have a solid budget that you stick to. (You can download the Budget Template I designed for Surrogates here: Budget Template) Famed author and radio personality Dave Ramsey suggests using cash envelopes. It is an effective way of making sure you don’t over extend on your budget. Lets say you have a $100 entertainment budget for the month. Put a $100 bill into an envelope and use that money for your entertainment. Once it is gone then you know you can’t spend any more money on entertainment that month.
While this is a great method, I recommend using automated tools over non-automated ones. It is too easy to make excuses about why you need the money and not stick to your envelope plan. Try using the automation tools for 30 days. It will take a little time to get adjusted to, but you will be pleased with all of the extra money you will have at the end of the year.
And be sure to come back next Friday for Part 2 of How to Jumpstart your Savings.
—Edward Brockschmidt, CPA & Co-Founder of SeedTrust Escrow
Every Friday, CPA and Co-Founder of SeedTrust, Edward Brockschimdt, will focus on “financial fitness” by answering the most commonly asked financial and tax questions relating to surrogacy and egg-donation.
If you have a question that you would like answered, please comment or drop us a line at [email protected] and we may answer your question in the upcoming weeks.
For additional answers to tax related questions please see Brock’s profile on JustAnswer.com by clicking here.
