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By Nikebola • 12th Jan 2019 • 349 views • 62 comments

Make Saving Money a No Brainer
No doubt, compounded annual returns will do wonders to boost your net worth, but you have money to make money. That requires saving consistently and boosting your savings rate whenever you can.

A GUIDE TO SMARTER INVESTING
Over the next several weeks, we’ll publish dozens of stories focused on the fundamentals of saving and investing. We’re hoping this will provide some smart investing lessons for beginners and give valuable perspective to more experienced investors as well.

As a first step, think about your savings objectives and make your savings goals as specific as possible. Don’t just save for a generic state called retirement. Imagine the freedom, and joy, that wealth can buy you once your daily routine doesn’t involve heading to the office. If travel is among your goals, picture exactly where you will go. Put a photo of that destination in your wallet or on the shelf above your desk. This exercise isn’t about collecting the most green rectangles. It’s about how the sun looks rising over the Mediterranean from the balcony of your hotel room on the Amalfi coast.

Here are some ways to help you save more.

Automate all of your savings
Imagine if your company sent an email every pay period asking how much you wanted to take out of your check to put in your 401(k). You wouldn’t have much of a retirement account. That’s why behavioral economists urge companies to make 401(k) participation automatic, giving employees the ability to opt out, rather than offering the chance to opt in. Whether your employer has set up your account for you or you need to take a few steps to create your own retirement savings, the key is to take the decision out of your hands and put saving on auto-pilot.

Automation doesn’t just work for retirement. Set up an automatic transfer from your checking account to the kids’ 529 plans for college savings. Do the same with a brokerage account, so that every two weeks you are transferring a bit of cash from your operating account to your wealth-building account.

Put time on your side and save long term
The longer the hill, the bigger the snowball will be by the time it rolls all the way down. The longer your investments compound, the larger they will grow. For example: A recent graduate making $32,000 at age 23 needs only to put aside 5% of his salary in year one—about $30 a week—bumping the savings rate to 13% within five years to have a $1.2 million nest egg by age 65. And that’s before a company match. We’re assuming a 7% annual return and 2% annual raises, which is probably conservative for someone that young.

If you were to wait until age 32 to begin 401(k) contributions, however, and followed the same schedule of investments and increases, you would have a nest egg of only $600,000 by age 65, half of what’s possible by starting nine years earlier. Because the benefits of compounding really kick in after a few decades, every year you delay makes a big difference. Even if you don’t have a lot of money to save, making a habit of saving anything you can spare will make a difference in the long run.

Pull out your phone, use a money saving app
It won’t surprise you to know there are apps for this. If you’re the kind of person who might use a savings app, you are intimately familiar with Google, so we won’t go into great detail here. But to take just one example, Acorns will automatically round up your debit card purchases and deposit the change in a savings account. If you spend $2.25 on a Starbucks coffee, you’ll also divert 75¢ into savings. In 2046 you’ll have no memory of that coffee, but you’ll be glad that you spent three decades saving your pennies.

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