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Saving $10 a week for a year is enough for a plane ticket from Lubbock to Jamaica. Saving $20 a week for a year is enough for textbooks and school supplies for a year in college. Saving $5,000 a year starting at age 22, earning a 6 percent return until age 65, will provide almost $1 million for retirement.
The powers of saving and compound interest are behind America Saves Week, an annual event that runs Monday through Saturday (Feb. 23-28) and encourages people of all ages to start saving, keep saving or increase contributions to savings or wealth-building accounts like 401(k)s or individual retirement accounts (IRAs).
Professors from Texas Tech University's acclaimed Department of Personal Financial Planning and coaches from Texas Tech's student-run financial help program Red to Black weighed in on how best to save, particularly for people who aren't making much money or who don't already have a habit of saving.
Make saving money easy
- Pay yourself first. Put 10-15 percent of each paycheck into savings. Then make a budget/spending plan on what remains.
- Set up automatic deductions from either your paycheck or your checking account to go into savings. If you don't have to think about it, then setting money aside doesn't seem like a sacrifice.
Leave it alone
- To save for an emergency fund, create an online savings account and have money automatically transferred a couple days after you get a paycheck. If you do this at a different bank, you can create a 2-day buffer to transfer the funds back to checking if you get tempted to spend it. This buffer can provide a valuable tool to avoid impulse buys.
- Don't use your long-term savings as an emergency bank account.
Plan ahead – way ahead
- Contribute to a matching 401(k) – instant 50-100 percent return. The savings are deducted up front so there's no chance to spend it, and when you take advantage of the employer match, it is free money.
- Defer Social Security until 70.
- Be careful about borrowing from your retirement plan just because you can.
- Don't cash out your retirement plan when you change jobs, move it to an IRA and avoid
the taxes and extra 10 percent penalty if younger than 59 ½ years.
Pay attention to where your money goes
- Download the Mint app. With Mint it's easy to make and track your budget, as well as set aside some money for short-term and long-term financial goals.
- Plan ahead: Know your big expenses for the semester and plan for them so you're not caught off guard and have to use credit or loans.
- Buy a change jar that tracks how much money you have in it. This can motivate you to save all your spare change.
- Check your credit card or bank statement regularly and compare your monthly savings to your goal. Reward yourself if you are doing well or make an extra effort to save if you are falling behind your goal.
- Don't forget to budget some fun money. Saving is very important, but so is having fun.
Take baby steps, but set goals
- Make SMART goals (Specific, Measurable, Attainable, Realistic and Timely).
- Start small, have a reason and build on small successes with bigger success. Don't try save too much too quickly.
- Even when you think you can't save anything, start small. Open a savings account at your bank, attach it to your checking account so in emergencies, funds will transfer from your savings to your checking account. Then have just $5 each week or each month drafted automatically to your savings account.
- When you've noticed you haven't missed that $5, after the first few months, start saving $10. Then set a goal to have $500 to $1,000 saved and before you know it, you have an emergency fund. Then you can begin saving for retirement and other goals.
- Again, the trick is to start small with something you can achieve in a short time frame that you can then build other successes on. The first success may be to have enough in your savings account to pay for an unexpected doctor visit, car repair or home repair.
- Slowly building a habit of saving for specific needs, in this case for an emergency fund, keeps you from spending more than you have to on credit card interest and builds a savings habit or a “savings muscle” so saving for what you want gets easier each day.
Don't pay too much
- Review insurance coverage. You may find you are paying for more than you need or that you can save money by increasing your deductibles. Ensure you have adequate savings in an emergency fund before you raise those deductibles too high.
- For people who have jewelry, art or collectibles: When was the last time you had your precious items appraised? The last five years have seen gold and diamond prices skyrocket. The insurance company probably will not automatically increase your scheduled personal property values unless you provide updated appraisals. Don't get caught with old appraisals at claim time or you will be digging into your pocket to replace those items you cherish.
- Start your holiday shopping now, well before the season starts.
- Don't go to the grocery store when you are hungry, and make sure you take, and stick to, your list.
- If there is a bad habit you want to break (smoking, drinking, too many Starbucks lattes) then put the money into savings each week that you would normally spend on the item. Skip two lattes a week and you can put away $520 annually!