Saving for the future is important because it will help you purchase the essentials for survival if and when you no longer have an income (or an extra cushion to make up for any gaps in Social Security or a pension—if you have one). The trick to successful saving is to make it a routine part of your life.
Larry L. and his wife (who have an 11-year-old son) have done just that. “We do put money away for retirement and our son’s education,” he says. “It’s really a non-issue. It’s like a prepayment to those things.”
If you don’t have your savings on auto-pilot just yet, don’t despair. It’s as simple as writing down what you’re bringing in, where that money is currently going, and what you have left to save. “The key,” says Tyson, “is to analyze 6 to 12 months of your spending and identify where you can cut” so that you have more to save each paycheck.
How much should you be saving, overall? According to Tyson, “It depends upon your goals and current financial situation. Generally, you should try to start saving 5 percent of your gross income and then get up to at least 10 percent.”
The savings goal that makes sense for your family depends on factors such as your job security, your health and the quality of your health-care coverage, the number of wage earners in your household, how many dependent children you have, your access to emergency sources of credit (including home-equity lines), and the likelihood you'll need to make major purchases or repairs.
If you’ve already started saving and you want to avoid the temptation of spending that money, create a separate capital fund for big-ticket expenses you expect within the next five years, such as a new car, a major vacation, or a down payment on a house. That will also protect you from the trap of creating high-interest credit-card balances when big-ticket needs arise.
Regardless of your savings goals, even if you can set aside only a few dollars a week, have it go direct-deposit from your paycheck before you even see it. Soon you'll adjust to not having that money, and you might find it easier to increase the amount gradually without causing real pain. If you get a raise, don’t spend it—funnel it into paying off debt and savings. Learn more about the safest places for your cash.