Okay, let’s take another look inside your success toolbox. And let’s pull out your most important tool and take a closer look at how to use it and how it works! One of the first things I ask a new client is “ How is your savings plan coming?" Usually the answer I get is “What savings?” or perhaps even worse “I lost a lot of my savings in the market.”
I have a very simple and easy approach to get you headed in the right direction - financially speaking. The most important first step is to set up a savings account with weekly deposits automatically coming from the checking account and going into the savings account. I suggest starting with a small amount allowing you the opportunity to develop the positive habit of saving. As your financial situation improves, and savings becomes a new habit, then work towards increasing the amount you are putting into savings.
Are you wondering why savings is so important? It is as critical to your economic, physical and emotional well-being as is rest. It is the equivalent to the importance of a quality mattress is to a good night’s sleep. I was told some time ago by a wise financial planner…having $10,000 in your savings account makes for a comfortable mattress – with each additional $ 10,000 the mattress becomes a sturdy foundation for achieving dreams! Incorporating a system of savings into one’s financial life is the basis of a sound personal financial plan. I don’t want you to have sleepless nights on the “account” of money (or lack thereof). Let’s use your savings tool (along with your budgeting tool), to help you create a solid foundation
A sound personal financial plan needs to include the following goals:
- Accumulate emergency cash reserve – at least six months of normal living expenses.
- Accumulate a down payment needed to buy a home. I suggest accumulating a 20% deposit and using a conventional 30 year mortgage. A home may not be the investment it was in the past but it is still sound advice for most of us to own the roof over our head instead of renting. Sometimes renting makes sense but in the long run, buying is almost always the best approach
- Setting a conservative retirement program. In the beginning the focus should be on accumulating funds and not maximizing investment return.
- I believe that money is a form of energy. I like to set up an automatic giving program so that once a month a set amount is sent off to a charity of my choice. In the beginning, the amount being given isn’t as important as the regular periodic contribution being part of the savings plan.
This is a good time to share with you a little about the “The Miracle of Compound Interest “In this example, the author is talking about investing in mutual funds and I would wait until a significant amount of savings (perhaps a mattress full) has been accumulated in cash and then seek investment advice from a “seasoned” pro about alternatives. If you are young…this is a must read for today – don’t delay, okay! http://www.kiplinger.com/columns/starting/archive/2007/st1107.htm