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My son went to the Army’s famous — and demanding — Ranger School in Fort Benning, Georgia. After he graduated and earned his Ranger tab he told me one of the things he took from the experience was that “you can always take one more step.”
Wes Shannon
Saving money is the same. You can always save one more dollar.
There is one action everyone can take to improve their financial well-being and that is saving money. I propose we all include in our New Year’s resolutions the goal of saving more than we did in 2023.
Increasing savings can be done in a variety of ways and with a variety of accounts. One of the easiest places to increase savings is in a 401(k) plan at work. I advise clients to plan on putting one half of their pay raises into their 401(k) and spending the other half. If you receive a 2% pay raise, increase your contribution to the 401(k) by 1%. Even if you only raise your contribution by 0.25% it is saving a dollar more.
For people without access to a 401(k), contribute to a Roth IRA. If you make more than the income limits for Roth contributions, open up an investment account and set up automatic contributions from your bank account. I have some clients who start out at $100 per month on an automatic bank draft from their checking account to their investment account.
Each year I call them and ask, “Can you increase that $100 to $120? Would you miss an extra $20 a month?” I have one client who started at $100 per month nine years ago and now she is saving $400 per month. She just increased it every so often by $20 to $40 a month.
If you don’t have an emergency fund with enough money to pay six months of your expenses, then start adding to that. Just a simple savings account at the bank will do. Add $5 a week and you will be surprised what a difference that can make. Give up Starbucks one day a week and you could add $10 more a week.
Cash value life insurance is a great place to increase savings. Call the insurance company and ask if you can increase your premiums $50 a month. I have a client with an Indexed Universal Life Insurance Policy with premiums that started at $350 a month 10 years ago. Each year he would increase his premiums. Today, he is saving $625 per month into the policy and has a very nice cash value.
Take some time now at the beginning of the year and calculate what percentage of your income you are saving and investing. Take into account what you contribute to your 401(k), health savings accounts, permanent life insurance policies (term policies don’t have cash values), Roth IRA’s, regular IRA’s, savings accounts, brokerage accounts, and any place you are putting your money into on a regular basis. If all of it is less than 15% of your gross income, then you need to increase your savings.
This New Year's resolution is for you.
If you are saving more than 15% of your income, good for you! Still, adopt this resolution and increase your savings amount in 2024. The more you save the easier your life will be later.
The interest and investment returns made is not near as important as how much you save. In fact, the more you save allows you to take less risks because you won’t need as much return on investments if you have more money. Higher investment returns require assuming more risks. When working with clients to achieve their financial goals, I’m looking for the least amount of risk necessary to get those goals. The more money a person has the less risk is needed, and more money comes from saving more each and every year.
Let’s all make 2024 the year of more savings. There is no downside whatsoever to having put away a dollar or two more than you did last year. Saving money and working with a Certified Financial Planner practitioner™ will help you live a better life.
Wes Shannon CFP® is a Certified Financial Planning Professional for Brazos Wealth Advisors.