The problem with saving money is that it's like hiking toward the mountains. The target seems so distant that it feels like you'll never get there. However, people who start putting one foot in front of the other can get there infinitely sooner than people who are frozen in their tracks.
Like a lot of young couples, my wife and I started out in a studio apartment with no car, no savings, and student loan payments looming every month. It doesn't seem possible that a quarter century later, we've met our financial goals. It helped that we started saving money right away — pretty much as soon as I started earning more than minimum wage.
Looking back, I would break the journey down into the following steps:
- Focus on process, not progress, at first. The amounts you put aside at first might seem too small to make a difference, but don't start out worrying about that. Just take pride in living within your budget, and make sure you are setting something aside from every paycheck. The amounts will take care of themselves as time goes by.
- Keep your indulgences small. Saving doesn't have to be joyless. Give yourself some treats, but ours have tended to be more on the order of a good bottle of wine rather than splurging on a luxury car or buying too much house.
- Pay particular attention to fees. Earning interest is important, but when you first set up a savings account, what matters even more are the fees. These can easily overwhelm any interest earned on a few hundred dollars.
- Be an active shopper. As your savings build, not only shop for low fees, but also for the most competitive interest rates. Consumer-friendly sites such as MoneyRates (a site for which I write) routinely list the best rates on savings accounts, money market accounts, certificates of deposit, and checking accounts around the country, many of which are double or even triple the national average.
- Count on things you can control. Financial planners often use overly-optimistic return assumptions. Using more modest projections puts more emphasis on savings — and as recent history has shown, this can help you avoid disappointment.
- As you build savings, use them for leverage. The more money you build up, the more you may be eligible for special deals at banks, like higher interest rates or special fee waivers. Use this power — you'll have earned it.
Saving for retirement is a long journey, but as you gain momentum in building wealth, the steps you take get bigger and bigger, and all of a sudden that destination seems attainable. Just remember: The sooner you start, the sooner you'll pick up speed.
Author: Richard Barrington
Richard Barrington, CFA, is a 20-year veteran of the financial industry, including having served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc.