3 Financial Habits of Successful Savers
You know the feeling. You’ve put away a chunk of money for that really important purchase but you just need to dip into the pot for something small. And then something else the following week. Before you know it, there’s no end in sight when saving for that big purchase and it’s dragging. Don’t despair!
Building a good relationship with money might not come naturally to even the greatest savers, but there are a few similarities I have noticed in my line of work as a financial planner. The main thing is that saving doesn’t require a huge income - there are a few ways to stretch your finances just by knowing how to save effectively. I’m sharing three habits I’ve noticed in successful savers.
Education
To be successful in your saving, you must first know a little about account types and how they are taxed. In my experience, the best clients don’t just “leave it up to the financial advisor.” They get involved in the process, and once they have the right understanding, a client can be part of the decision-making process when it comes to where their money is held.
For example, you don’t buy an “IRA” but you may buy what is held in one.
An IRA is a type of savings account intended for retirement funds. It is meant for use after the age of 59.5 or post-retirement. You might opt for an IRA because it is tax deferred. This means that the growth of your account can be tax-free (allowing you to accumulate more money) as you claim contributions as a deduction on your tax return.
In comparison, a regular savings account will not usually hold any tax benefits.
Therefore, a client might opt for the IRA (and its fees) over a free, simple savings account to potentially keep more of their overall income over time. Successful savers will always know the most appropriate account types for their situations and be knowledgeable about the options available. Even when they don’t have much in the bank!
Tackling Debt
Debt is a problem that many of us face and tackling it should be a priority rather than allowing it to accrue interest. But across the board, I see those struggling with finances paying off their debt in the wrong order. Don’t get me wrong- paying off debt is incredibly important for financials like your credit score and eligibility for loans. It can even impact on your stress and mental health. Successful savers consider the order in which they pay off each of their various debts.
A common mistake is wanting to pay down a house note instead of, for example, ensuring you have an appropriate emergency savings fund or paying off credit card debt. The major reason why this might affect your finances more than you think, is that although a mortgage is a bigger balance, a credit card balance with a higher interest rate will just keep gaining. This makes it harder to pay the longer you leave it.
In the same area, it is important to consider the returns of a long term investment compared to a 3-4% mortgage (such as current rates for those with very good credit). On some occasions, you will receive higher returns by investing consistently over a longer period than paying off a mortgage with interest. Successful savers know it’s important to look into various situations before committing to a particular debt payment strategy.
Start Now- It’s Never Too Early
The amount you save might not be as important as you think, but getting into the habit of putting a few dollars in the bank consistently is. It sets you up for a good relationship with money and over the course of a lifetime can accrue a lot of interest.
Start today. For teens, it may be for a car or general maintenance. For college kids, it might be for emergency savings and college needs, and those further on in their savings journey may be saving for a house down payment. It doesn’t matter WHAT you’re saving for, as long as you practice actually putting that money away without dipping in for other purchases.
Call me to discuss your savings strategies, paying off debt, and learning more about becoming a successful saver.