Saving money is one of the most important steps people can take to bolster their financial security and plan for the future. But it's not as simple as it might seem because there are many ways to go about it. A tried-and-true savings plan doesn't have to be a challenge when you've got the right money-saving tips from financial experts versed in building wealth.
To help you pinpoint a savings path that's right for you, GOBankingRates reached out to 25 noted financial planners with the question, "What’s the most important thing to consider when building a savings plan?" Read on for the answers.
2. Start Early
Lisa G. Hay, a certified financial planner and lead advisor with Cornerstone Capital Advisors:
"The most important thing is to start early and save regularly. Automating your savings as a direct deduction from your paycheck is a great way to do this. Also, don’t let lifestyle creep prevent you from increasing the percentage that you save as your income increases. When you receive an increase in compensation or a bonus, put at least a portion of that money towards retirement savings."
3. Sustain Savings
Dara Luber, senior manager, retirement, TD Ameritrade:
"Make sure the savings plan you’re putting in place is sustainable. If you’re overestimating the amount of money you’re able to save, you will be miserably frugal now and disappointed in the future when you don’t reach your financial goals. Set yourself up for success by prioritizing your current expenses in a list, from what makes you most happy to least, and then cut from the bottom instead of the top to find savings and still enjoy the things that give you the most pleasure.
"This can lead to a less frustrating budgeting experience (and) a healthier financial perspective. This approach to budgeting will likely be much easier to maintain for the long term. Consider increasing the amount you save as you start earning more income. No matter when you start saving or how much you save, the important thing is that you regularly put money away for the future."
4. Divvy Up Dividends
John Cuti, vice president and senior branch manager of Fidelity Investments in New York:
"Understand your mandatory expenses versus discretionary expenses. No matter how much you earn, we all have mandatory expenses to account for, like food, housing, electric or gas bills, taxes, healthcare costs or a car payment. Once you determine how much is leftover after mandatory expenses are paid, you will know how much you can afford to put away in an emergency fund or other savings plan.
"Try our 50/15/5 rule of thumb as a simple guideline:
- "50 percent or less of your income should go to essential expenses
- "15 percent should go to retirement savings
- "5 percent should go to short-term savings
"As long as you stay within those guidelines, the remainder is yours to save or spend as you see fit. Fidelity offers a Savings Planner and Budget Snapshot tool to help get started, as well as resources to help find a way to balance spending, saving and debt."
5. Compound Without Complexity
Julie Lambert, vice president and branch manager of Charles Schwab in Plano, Texas:
"The earlier we start to save — whether for retirement or other goals — the less difficult the challenge becomes. For example, if you start saving for retirement in your 20s, 10 percent of your salary before taxes each year is a good goal. Even a small contribution like that can grow substantially over time. Much of that is thanks to the power of compounding — reinvesting earnings and keeping them invested to generate more earnings. If you wait until your 30s, that number needs to bump up to 15 percent. Wait until your 40s, and you’ll have to put away 30 to 35 percent each year. So clearly, the longer you delay, the more you’ll have to put aside."
6. Calculate Your Number
Jerry Linebaugh, founder and CEO of JLine Financial:
"Start with the end number in mind. You can do this if you have a monthly income figure for your retirement budget. Using software or sitting with a professional that has such software, they can gross up that monthly figure for inflation and taxes. You might actually be in retirement longer than you actually worked. If you are married, studies show that between the two of you, there is a 50 percent chance that one of you will still be alive at age 94.
"So you might want this monthly number to gross up for inflation and after taxes till at least that age or beyond. Once you have this end number in mind, now it’s a lot easier to see how much you need to put into your retirement accounts and how much risk you should take, not just how much you are willing to take."
7. Make Saving Second Nature
Christopher Van Slyke, certified financial planner and partner at WorthPointe Wealth Management:
"Automate it. Suck it right out of your paycheck. Save one third of your earnings right off the top. Then spend."
8. Develop Discipline
Jack Waymire, founder of Paladin Research & Registry:
"Do you have the discipline to save a specific amount of money each month? It is always easier to defer savings until next month."
9. Stay Focused
Bob Klosterman, a certified financial planner and CEO/chief investment officer of White Oaks Investment:
"A keen focus on the goals one wants to achieve and the amount of savings necessary is critical to success. Frankly, there is little that is noble about saving for saving's sake. A purpose that is important will provide adequate motivation to stay the course."
10. Plan and Prioritize
Kenyon L. Lederer, a certified financial planner and president of Pinnacle Asset Management:
"The most important things to consider when developing a successful savings plan is making it a priority over your other spending and making the contribution regular and automatic. These characteristics make 401k plans an extremely attractive option for retirement savings, but the same principles can be employed with saving for other goals [such as] with a 529 plan, a mutual fund with a periodic investment, or just a savings account at your bank. The key is starting, making the contributions automatic and keeping it a priority."
11. Picture This
Michael P. Miller, a certified financial planner with Miller Premier Investment Planning:
"It always starts with the destination. Your goals dictate the strategy and resources required to accomplish them. It is where all planning starts. Once you have a clear picture of your destination and where you are now, the possible routes (involving savings plans and strategies) become much more obvious."
12. Consider Goals
Brian Evans, a certified public account with Madrona Financial Services:
"Make sure you consider your own personal goals as they relate to risk versus security, to what extent you wish to leave a legacy, and you should always consult a CPA to make sure your biggest expense — taxes — [is] being optimized."
13. Track Your Progress
J. Harold Williams, a certified public account and president and CEO of Linscomb and Williams:
"Most people know the conventional rules: Start early and be consistent. But perhaps equally important: Make assessments of your progress along the way and use professional help if you have doubts about your own skill in running the numbers.”
14. Build a Budget
Martin A. Federici Jr., CEO of MF Advisers:
"Without a doubt, you need a budget to make sure you can save your Ps and Qs for your short-term and long-term savings goals. That way, if your financial situation changes, if you lose a job or have large medical bills, you can adjust your budget and your savings plan as needed."
15. Stick to It
From Jeffrey C. Lewis, CFP, Planning Financial Futures:
"One's ability to stick to the plan every month. Good markets or bad, time in the market is what counts, not timing of the markets."
16. Determine Risk Vs. Reward
Roger Patterson, a chartered financial consultant and president/founder of The Advisory Group:
"What you should save now depends on when you want to be financially independent, how much you want to spend when you stop working and your investment risk/reward profile. The earlier you want to retire and the lower your tolerance for market volatility, the more you will need to save now in order to have achieve your desired level of financial flexibility."
17. Cover Uncertainties
Dustin Tondre, a certified financial planner with TL Private Wealth:
"A savings plan should be designed to cover uncertain and abnormal expenses without having to tap into retirement or investment accounts. The amount of your savings plan should be determined based on the individual or families situation. The most important thing to consider is make sure your savings plan is flexible, liquid and accessible."
18. Consult a Professional
Laurie Wieder, vice president of Qualified Plans at Alexandria Capital:
"Unless you’re an expert at how much you need to save, consult with an expert. "
19. Plan for Inflation
John Frisch, a certified public account and president of Qualified Plans at Alexandria Capital:
"The most important thing to consider when building a savings plan is to realize that the biggest risk an investor faces to a financially secure retirement is from inflation or loss of purchasing power. A thoughtful savings plan will strive for a meaningful investment rate of return above the inflation rate."
20. Get Real
Theresa Lee, a certified financial planner, partner and CEO at Alexandria Capital:
"Set a realistic goal and expectation."
21. Pad Your Emergency Fund
Ingrid John, a certified public account and managing director of tax and wealth at Alexandria Capital:
"Fund your emergency account first. This could range from three to six months of your monthly expenses."
22. Expect the Unexpected
Eric Mancini, a certified financial planner and director of investment research at Traphagen Financial Group:
"Take a lot of time and get very accurate current spending information, and build in a cushion for unexpected or special expenses. Once all spending is completed, figure how much and where to save (such as a 401k or a Roth IRA) depending on tax. Then stick with the plan."
23. Deal With Setbacks
Linda Ward, executive director and head of retirement and planning solutions at JPMorgan Chase & Co.:
"Start now and be realistic. Don’t be discouraged when life happens. Get back on track as soon as you can."
24. Control Debt
Maria Bruno, senior investment analyst at Vanguard Investment Strategy Group:
"An important part of creating a savings plan is estimating savings goals that accurately reflect your current state. Know what you’re spending now, get debt under control and estimate what your savings goals will cost. It's important to start investing at an early age to take advantage of compounding. The amount you save will be a much more powerful and reliable contributor to wealth accumulation than trying for higher returns by increasing the risk in a portfolio."
25. Save First, Spend Second
Walter Updegrave, editor of RealDealRetirement.com:
"The key is finding a way to put saving first. Most people do the opposite. They spend and then save whatever’s left. Unfortunately, that’s often little or nothing. A better approach: Commit to a savings target — 15 percent of pay if possible — and if not, start with a lower figure and increase it gradually. Then adjust your lifestyle to the income that remains after you’ve saved.
"The easiest way to adopt this strategy is sign up for your company’s 401k or similar workplace plan. By automatically transferring a percentage of your paycheck into savings before you can get your hands on it, 401ks and other workplace plans increase the odds that the money will actually be saved rather than spent.
"Think of it as putting your savings effort on autopilot. If the company you work for doesn’t offer such a plan, you can sign up for an automatic investing plan that transfers money from your checking account to a mutual fund account every month. The point, though, is one way or another to get money into some sort of savings or investment account before you have a chance to spend it."