Why we need to save? – The answer is clear; it is for our future hoping to live better than what we currently are.
The goal isn’t to get rich. Rather, the goal is to have enough money to lead the life we want. In this blog, I will highlight the easiest and the automatic way to save and live better.
If we know our future is secure, we will sleep better and have less stress which leads to better life. We all must strive to save at least 20 -30% of our salary/income.
“Pay yourself first” – This is what you should do when you start are saving.
In general, we always pay our self last.
This would be a typical flow,
Receive Salary from Bank account:
o we pay Bills.
o We pay credit cards.
o We pay rent
This is the incorrect way of saving for our future.
Based upon my learning and my experience, I have highlighted a simplest way to save and not to worry about anything.
Fund your retirement plan: Let me start why we need to fund our retirement plan first.
For every dollar you earn, Government takes their share first then only the rest you will receive in your bank account.
If you are in the tax rate in 30s, Government usually takes 30 cent out of your dollar which will lead take home only to 70 cents. This is your money which you have worked hard for it.
Is there any legal way avoid it, unfortunately not fully. But we can use our pre tax dollar amount to retirement plan.
In this case, it would be like this, if you save 10% of your pre tax salary then government will have only 90 cents to take its share, which will be less than the 30% what government took initially.
If you have any 401k plan in your company, max out the 401k plan each year.
Sometimes you will get free money through employer match as well.
To even improve, make this as automatic deduction from your paycheck.
Direct deposit : This is one of the simplest tasks which is very effective to the overall plan.
Instead of receiving in check or cash, Prefer direct deposit if your employer has one.
Direct deposit which will make one less thing to worry.
Emergency fund: We will not know when we will have our emergency situation. It is better to be safe than to be sorry.
Start less and try to save at least 1-2% of the salary until you reach the 3-6 month of your living expense.
You should take this money only during emergency and not during any other time.
Taxable Account: This is where you will invest in your money in stock market for higher return.
In the taxable account, keep tax efficient funds where you will incur fewer capital gains or dividends.
Because every dollar which comes from your investment will be taxed by the government , so it is advisable to keep only the tax efficient funds in your taxable account like Total U.S stock Market or Total International market.
Bonds should be kept in your tax advantages account like 401k as income generated through bonds are taxed at regular income level.
You can refer my other blogs on how to create an investment plan.
Dream Account: Sometimes we always want to have something expensive like laptop, jackets or a diamond ring.
Instead of getting all these items on credit, we should build a dream account where we save small money every day/month
Assume that if you want to have a coffee which will cost you $4, you can automate a rule saying transfer $4 when you buy coffee outside.
This would encourage you to spend less and save more.
Credit Card Bills:
Once you all saved for yourself first , you should start paying your credit card bills.
The idea here is, after you paid yourself, you should start your spending. You will be never spend what you don’t have.
Bill Pay:
This is the next step where you will pay all your bills, rent and other utilities.
Donation:
This is one of the steps which will give you piece of mind by helping our fellow humans. You can donate your time or money for the cause which you would like to complete the whole process.
These major steps will help anyone who want to save and live better.
Thanks for taking your time to read.