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Saving money is crucial to your current and future security. Here are some “painlessly” easy ways to make saving a natural part of your life as suggested by LSU AgCenter family economists.
Build an emergency fund. Life is unpredictable. Your car may break down; you could lose your job; or you could have a medical emergency. Because of where we live, all of us may find ourselves trying to flee an oncoming hurricane. You never know what can happen. Set aside enough money to cover basic living expenses for three to six months. Put this money in an account from which you can withdraw money immediately and without a penalty. Figure out how much you should have available in case of an emergency by going to any of the many online calculators for assistance.
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Pay yourself first. A key to becoming a saver is to pay yourself first. It's a great way to get in the habit of saving. It may be difficult at first, but before long, you will be very happy that you are saving and paying yourself first, not last. Join programs such as America Saves, an online personal wealth estimator, and commit to your own wealth building program.
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Do it automatically. Pay yourself first automatically. It's easy to do electronically. Simply have a certain amount from your paycheck deposited into a financial account. You'll complete a form authorizing your bank (or whatever institution) to receive a portion of every paycheck and deposit it into your savings account. This is a great way to build up your savings -- if you don't see the money, you won't miss it.
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Save 10 percent of your paycheck. A good rule of thumb is to save 10 percent of your paycheck. If this feels too high, try 5 percent for a while. Then try to work up to saving 10 percent of your earnings. You'll thank yourself over and over when you retire.
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Enjoy the power of compound interest. A simple savings strategy is to leave your money alone and let it accumulate over time, or "compound." Thanks to the power of compounding, the more money you save, the faster it grows. That's because you earn interest not only on what you save but also on the interest generated. The earlier you start to save, the more dramatically your money can grow.
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Example: Let's say you start out with $100 and it earns 5 percent compound interest. When your interest is compounded, the bank takes the interest that your account has earned during the previous day, week, month or year. It adds that interest to your principal and then calculates your new interest payment. If you receive 5 percent compounded interest on a principal of $100, your investment would grow like this:
Year 1: $105.00
Year 2: $110.25
Year 3: $115.76
Year 4: $121.55
Year 5: $127.63
According to AARP's Money Matters Tip Sheets on Savings Tips and Cost Cutting Tips, you can find more information and action steps to help you.
For related information on saving money and other family money issues, go to the Family and Consumer Science area of the LSU AgCenter Web site. Also, contact Margaret at the LSU AgCenter Office located at 511 Roussell Street in Houma or call 985-873-6495. E-mail questions or comments to Margaret Burlew.