Sound Saving and Investing: Taking the Road to Riches Step-by-Step

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:

    1. 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.

 

    1. 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.

 

    1. 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.

 

    1. 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.

 

    1. 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.

 

  1. 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.

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Kevin@OutOfYourRut
11 years ago

#1 “Focus on process, not progress, at first.”

So often we’re so anxious for “something” to happen. We want action! That can be an undoing with a process that requires patience as a pre-requisite.

Just the fact that you’re saving for the future proves that you can living beneath your means, and by itself that’s significant.

The other obsession is return on investment. But that takes years, so watching your returns day by day or even month by month can also be counterproductive.

Carl
Carl
11 years ago

I love this article.

You may have added that you should set yourself clear and measurable goals. Once you have these and you start with the end in mind you may be more motivated to persist.

Mike Piper
Mike Piper
11 years ago

“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.”

That’s absolutely been one of the biggest successes my wife and I have had financially. By getting the big stuff right, we can mess up on a lot of the small stuff without having to worry so much.

chacha1
chacha1
11 years ago

“keep your indulgences small” … so important when income goes down, as it has for us, to *allow* an indulgence. We used to spend a lot on dining out but over the years got a bit jaded by the experience. Especially when we looked at just how much money was being spent. Instead of routinely going out, we started preparing more complex and thoughtful meals at home. We both are competent cooks, so we can do a very good meal for a fraction of restaurant price. Changing that dining-out habit reduced frivolous spending a lot, so when I got laid… Read more »

jeffeb3
jeffeb3
11 years ago

Although this is good advice, I’m wary of constantly shopping for rates. Sometimes you lose more by frequently moving money. Just let it simmer. You’d be better off spending your energy learning a new recipe, or tending the garden, or working for some extra cash. The first point could be an article on it’s own. J.D. probably has written an article similar to that point in the past. If I were writing this article, I would make it a lot more clear that I have an interest in people checking rates more often (the author blatantly plugs their website in… Read more »

Eric J. Nisall
Eric J. Nisall
11 years ago

Absolutely agree with Kevin. Most people do not feel accomplished unless there is drama associated with the results. The most important thing about process over progress is laying the foundation and groundwork for strong habits. Without steady, repetitive habits, the chances of failing are much greater. By starting off on a small scale,people would be more receptive and able to changing their ways. Then they can gradually shift the priority to the progress portion and increase the savings rates.

Kevin@OutOfYourRut
11 years ago

Mike Piper (3)–“By getting the big stuff right, we can mess up on a lot of the small stuff without having to worry so much.”–Totally BRILLIANT!!! Most of us obsess on the little things rather than going for those with the greatest impact.

Eric (6)–Thank you. And I agree with your point about habits, that’s the foundation to everything.

mewithoutdebt
mewithoutdebt
11 years ago

“Keep your indulgences small” – I am glad you said keep it small rather than completely unfulfill, which not practical at all.

Tyler
Tyler
11 years ago

I agree with Jeff (#5). The fourth point is just an advertisement for the author and really doesn’t provide much substance to the article.

Dustin | Engaged Marriage
Dustin | Engaged Marriage
11 years ago

Thanks for a good read. I am always preaching to my friends and family that it is easiest to control the “outgo” side of the financial equation by living within your means. If your “income” side grows, that’s fantastic but you won’t be left in dire straits when “life happens” as long as you maintain a reasonable lifestyle.

Aleks
Aleks
11 years ago

I agree that shopping for rates is not the best use of your time. If you have $10,000 in savings, a half percent difference in interest rates amounts to $50 extra dollars a year, or $4.17 per month. You could save a lot more by finding a cheaper cellphone plan, bringing lunch from home (even just once a week), tutoring or giving music/computer/photography lessons for one hour a month, or even buying a cheaper cup of coffee. I think it is worth your time to find a savings account that pays decent interest and has no fees, but beyond that… Read more »

Brandon
Brandon
11 years ago

I get frustrated when I think I’ve found a good bank with a good rate and then they go down down down. That’s probably all banks right now, but as my savings builds, it’s sad to only get 1 or 2% on my money. Nice, clear article.

And what’s wrong with mentioning his website. Sheesh. Someone might like what he’s written and want to check out more!

Kevin@OutOfYourRut
11 years ago

Brandon (12)–You’re raising a good point, but in a way isn’t that good training for real life? So many of the financial how-to’s lure us with promises of magical LONG TERM returns–if you aren’t getting those magical returns and you’re still saving, I think you’ve got it figured out. Even if you aren’t doubling your investments every 7-10 years, if you can live comfortably within your income, put some aside and have a pile of cash that enables you to sleep peacefully at night, you’re still way ahead of most people. We hear a lot about the investment success stories.… Read more »

cph
cph
11 years ago

“The heights by great men reached and kept / Were not attained by sudden flight, / But they, while their companions slept, / Were toiling upward in the night.” – H.W. Longfellow

Lawrence
Lawrence
11 years ago

I believe that most people are intimidated by what should be the easiest component, defining a goal.

Finance Answers
Finance Answers
11 years ago

“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.” What a great point! I think its always important to reward your accomplishments, even if it’s a simple as a great steak dinner. I think it’s also important to punish yourself for any times that you aren’t self-disciplined. The consequences you should established before hand so that in the process (often painful) you can remind yourself of both… Read more »

Foxie@CarsxGirl
11 years ago

Something just struck me at the end of this article — building wealth vs. saving for retirement. It’s the same thing, essentially… But building wealth sounds so much better to me than saving for retirement for some reason. (Probably my age. I hate feeling like I have to worry about my retirement at 21.) For me, I’d rather build wealth and work towards a point where I can get paid for my passions/what I’m good at & enjoy rather than working a “normal” job. I have lots of ideas that I’d love to pursue, one being that I’d love to… Read more »

JonasAberg
JonasAberg
11 years ago

“…Focus on process, not progress, at first…”

Along those lines, I think it’s very important to set goals along the way to the greater goal. If you have one huge milestone far off into the future you may get paralyzed but if you set small, attainable goals along the way it seems a lot easier (to me anyway).

Credit Card Chaser
Credit Card Chaser
11 years ago

IMO the best point is the first one:

“Focus on process, not progress, at first.”

This is simply because most people that do not write down their goals and work out a concrete process for tracking their actions will simply revert back to their old habits eventually.

Alex Burda
Alex Burda
11 years ago

I started saving step by step as you descibed. It was not exciting at first and I did not save a huge proportion of my income, however once I knew that I needed to put away a certain amount I learn’t to live without it. Occasionally I will still indulge but the security of savings is a great comfort.
My biggest tip would be to start young and keep going

kenyantykoon
kenyantykoon
11 years ago

these are very nice points. i hope i remember then as i live because i flew “out of the nest” a short while ago and i need to learn money management really well, not to mention that i have very lofty financial goals

Linear Girl
Linear Girl
11 years ago

@cph – Thanks for the poetry; it was a lovely way to start my morning.

David@DINKS Finance
11 years ago

I’m only 21, and your post makes a lot of sense. I feel as though in a year or two my girlfriend (eventually wife) will be in the same boat – small apartment and extreme amounts of student debt (grad school won’t help that, either). But it’s so important that we, and everyone else who is “just starting out” get in the habit of saving and investing. The longer you put it off the more painful it will be!

Sam
Sam
11 years ago

I would add automate and segregate to the list. Our monthly savings (not including retirement which is already deducted before we get paid) is all automated, the money is moved from our day to day accounts to our ING accounts with out any effort on our part (besides for setting up the auto transfer). The money is gone and we don’t count it in our spending plan (our form of a budget). And by using ING or some other savings account separate and apart from our day to day accounts we don’t see the money (Mr. Sam never sees it… Read more »

Chickybeth
Chickybeth
11 years ago

Thanks for this post. I am contemplating opening a ROTH and I needed the boost of confidence.

Richard Barrington
Richard Barrington
11 years ago

I appreciate all the thoughtful comments. One of the great things about this kind of forum is not only the exchange of ideas, but the way a community of people with similar goals can reinforce each other’s work toward those goals. I do want to add a clarification on my mention of moneyrates.com in the piece. Sorry if this seemed like a shameless plug, but I assure you my interest in moneyrates.com does not go beyond the fact that I write and do interviews on financial topics for them. In other words, I don’t really gain anything whether you go… Read more »

Vas
Vas
11 years ago

Process – Absolutely. I don’t think you can be thinking 10 years ahead. Problem is with that is that you have that vision in your head from day 1. We are human and to hold that thought for 10 years is impossible – we are impatient. In the middle somewhere we will give up. Instead of thinking so far ahead. Have the thought – I will save this much this week. Complete it – get satisfied and press forward to next week. Baby steps I suppose. I think this way, by satisfying yourself every week you will stay more focused… Read more »

Joel Reese
Joel Reese
11 years ago

I think Eric (6) made an excellent point about starting small and working your way up in scale. That’s key, because starting small instills some discipline that you can use for bigger goals. For instance, I used to eat out everyday for lunch. Then I shrunk that to only three days a week, and now it’s two days a week. Soon, it will be a luxury rather than a weekly given. That seems small, but it gives me some confidence to start looking bigger picture. With the money I’m saving — and I was surprised to see how quickly it… Read more »

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