Saving: 10 Questions

IF YOU DON’T SAVE diligently, you are highly unlikely to amass a decent-size nest egg. Time to make amends? Here are 10 questions to ponder:

1. Do you regularly spend more than planned? Try writing down every purchase you make. That’ll tell you where your dollars are going—and make you think twice before spending.
2. How much of your income goes toward fixed living costs? We’re talking about items such as mortgage or rent, car payments, utilities, groceries and insurance premiums. If your fixed living costs are too high, you’ll find it tough to save, no matter how determined you are.
3. If you have goals other than retirement, are you saving more than 12% of income? That 12% is probably the minimum you should be socking away each year for retirement. If you’re looking to make a house down payment or fund the kids’ college, that will require additional savings.
4. Is 12% enough? With long-run stock and bond returns expected to be modest, it might be safer to sock away more than 12% for retirement.
5. Should you force yourself to save—by automating your savings? Many folks use payroll deduction to fund their employer’s 401(k) or 403(b) plan. But you could also automate other savings, such as automatically moving money every month from your checking account to a high-yield savings account or to your favorite mutual funds.
6. To save even more, how about cutting living costs—and then upping your automatic investments by an equal amount? Let’s say you save $150 a month by downgrading your cable package, cancelling magazine subscriptions, using a cheaper gym, and raising the deductibles on your home and auto insurance. To ensure those savings don’t get squandered, you might immediately increase your automatic monthly investments by $150.
7. Could you turn debt payments into savings? Suppose you’re about to pay off a student loan or car loan. You’re used to living without the money, so it shouldn’t be any great sacrifice to redirect the sum involved to your favorite mutual fund.
8. Do you have excess cash in your checking account? Move it to a high-yield savings account or a low-cost money market mutual fund. If you leave the money in your checking account, it’ll earn little or no interest—plus you may be tempted to spend it.
9. Could your savings be working harder? If you favor lower-cost investments, take advantage of tax-deductible and tax-free retirement accounts, and ensure you collect the full matching contribution offered by your employer’s 401(k) plan, your savings will almost certainly grow faster.
10. Should you create a wish list for major expenses? By keeping a running list of potential major expenditures—things like remodeling projects, new furniture, new cars and vacations—you’ll give yourself extra time to ponder whether these are good uses for your money.

The above article is part of a series. Click here to find links to the other nine articles in the series. Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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