Americans are notoriously bad at saving money. Not just in the traditional sense, for the big stuff we want, like a car, college, a home and retirement. But also for the little bumps and hiccups life throws in our way — the broken bones and car repairs, braces for the kids and cell phones that have been lost or left for dead.
At least 59% of U.S. workers are living paycheck to paycheck each month. And though the Federal Reserve’s most recent “Report on the Economic Well-Being of U.S. Households” found financial preparedness has improved substantially in the past few years, more than a fifth of the adults surveyed said they weren’t able to pay all their current month’s bills in full.
And 4-in-10 adults said if faced with an unexpected expense of $400, they either would not be able to cover it or would cover it by selling something or borrowing the money.
When times are tight, it can feel as though putting even a few dollars away every month is next to impossible. How can you save money when you have a low salary and so many expenses?
But there are ways to get that boulder rolling in the right direction — even for those who are new to working full-time and living on their own.
Several recent surveys have concluded that Millennials, despite being labeled as spoiled and lazy, are doing better than past generations when it comes to saving.
A Harris poll for the Transamerica Center for Retirement Studies found that 39% of Millennials can be defined as “super savers” — putting more than 10% of their salary toward savings. And according to Bank of America’s “Better Money Habits” survey, about nearly 16% of Millennials have already saved $100,000 or more.
It’s easy to push off saving to another day, another year or another pay raise. But there are plenty of good reasons to get started, too. There’s the power of compounding interest, for one.
But having a savings cushion also potentially reduces stress and improves your sense of financial well-being. Saving now can give you options for the future, and a sense of control over what’s happening today.
Here are three ways you could get started:
Taking advantage of the employer match
According to the National Institute on Retirement Security, four in five Americans have saved less than their annual salary in retirement accounts. Thankfully, it’s never too early, or too late, to invest for retirement. Enrolling in your company’s 401(k) plan could be a place to start, and they may even offer matching contributions.
Not every employer offers a match — or a 401(k), for that matter — but thanks to a tight labor market, it’s a perk that’s making a comeback. So grab your employee handbook, or someone in HR, and ask about how your plan works. Some employers contribute a dollar for every dollar an employee puts into the plan, up to a designated percentage of his or her salary.
Others contribute 50% for every dollar up to a designated amount. Every plan is different. Plans are frequently set up so that your contributions are taken directly from your paycheck, so you don’t have to decide whether you can afford it each time, it just happens.
And there could be some tax benefits that could potentially work to your advantage come tax season.
Preparing a budget — and following it
If the idea of a budget seems daunting (or past attempts failed), it might be because you’re making the process too complicated. You don’t have to create a complex set of spreadsheets. When you’re new to budgeting, it might help to start with something simple.
The 50/30/20 rule for budgeting streamlines expenses into three categories so you don’t have to monitor every single expenditure to make it work. Instead, you divide your take-home pay — what you make after taxes — into three main categories: needs, wants and savings.
• Put 50% of your money toward needs. That’s housing, utilities, groceries, transportation, insurance, prescription medications and any other payments you have to make (credit card and student debt, alimony and child support, etc.). If you require a cell phone or other equipment for work, that might be a need, but if it’s the newest, most expensive model, you may be slipping into the wants category.
• Put 30% toward your wants. Here’s where everything from vacations to vending machine snacks can come in. If it isn’t essential, it goes into this chunk of your budget, so consider each expense carefully. This is where many people go wrong financially. Do you have to go to a gym to work out? Do you need Netflix and a weekly movie night? It’s all your call — but these costs all must fit into the allotted amount of money.
• Put 20% toward savings (or toward paying extra on your debt). This category could include your emergency fund, a savings account where you stash away extra cash for short- and long-term goals and your investment savings/retirement account. Keep in mind that some or all of these amounts already may be automatically deducted from your paychecks. If you’re planning to pay more than the minimum each month toward credit card and student loan debt, include those expenses in this category, as well.
• Feel free to tweak. If you want to save more than 20%, or you’re in a hurry to pay down debt, you can cut back on your wants to make it work. The key to budget success is to stick with your plan, though, so don’t make it so tough you can’t maintain it.
Automating your savings and payments
Most Americans are paid by direct deposit, and if you’re in that group, you might want to use it as an opportunity to eliminate at least some temptation when payday rolls around. If you’re contributing to your employer’s 401(k), for example, that money won’t ever make it into your bank account to spend — it will go right into your investments.
The same goes for a health savings account if you have one through work. But you don’t necessarily have to stop there. Ask your HR or payroll department if you can split your direct deposit into multiple accounts — a cash savings account, a Roth IRA or traditional IRA, for example — so you won’t be seduced into spending those dollars.
If you can’t do a payroll split, some banks offer the option to set up automatic payments from your deposit account. And you don’t have to stop there. In today’s internet age you could set up automatic payments for a variety of expenses.
Consistency is key
Your savings plan doesn’t have to be complicated. By starting small, and keeping things simple and steady, budgeting and saving may just become a habit.
Once you prove to yourself that you can survive on less, you may find ways to adjust your plan to save even more. But your first goal could be as basic as just getting started.
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.