Words: Vanessa Salvia
Photo: Krystsina Yakubovich
Masons know that a building is built one piece at a time, brick by brick. A goal is achieved the same way, be it putting one foot in front of the other to walk a mile or stashing an emergency fund away one dollar at a time. Heck, even one quarter at a time, if that’s all you’ve got, is better than stashing away nothing at all.
While many people, masons especially, intuitively understand the concept of completing a task by breaking it into small pieces, it can be difficult for people to translate this knowledge into an action plan for something as complex as finance. People with no financial plan often feel like they can’t make a dent in their debt. Or else they may feel like they are working their tails off but never getting ahead. Whether your goal is to save for retirement, a vacation, a home down payment, or pay down some debts, it will be more challenging to do without a plan.
Money Left Alone Grows
Let’s say you spend $25 a week eating at fast-food restaurants. Play around with some numbers — Investor.gov has an easy-to-use compound interest calculator.
If you put that $100 a month into an investment account every month for five years, earning .07% interest (the national average interest rate for savings accounts as of the week of February 24, 2021, according to Bankrate.com), you could have $6,008.41. Leave that money alone for 15 years, and it could turn into $18,088.47. Continue investing $100 a month for 30 years, and you could end up with a whopping $36,367.80. If at any point you were able to increase your savings, you would only end up with more. And if you stopped contributing, you would still have money in the bank. What’s more, when you start saving is more important than how much you save because of the effects of compound interest.
Break It Down
Setting healthy financial goals involves a few things: managing everyday spending, reducing debt, and saving money. For example, within that are short- and long-term goals — saving for a car repair versus a retirement fund. If you don’t already have a budget, set one up. At this point, you simply need to identify how much you have and where the money is going.
Then, once you have a picture of your spending, figure out what you can change. NerdWallet suggests categorizing money into “buckets” of 50, 30, and 20. That means allocating 50% of your income toward needs, 30% toward wants, and 20% toward savings and eliminating debt. Mint is one app that can help you quickly set up a budget that integrates with your bank so that you can track and categorize spending.
Pro Tip: If setting up an ongoing budget seems too daunting, ask your bank to print out the last two or three months of statements from your credit and debit cards and categorize your expenses based on that.
Create An Emergency Fund
One of the most important reasons to start setting aside money is to have an emergency fund. If there’s anything this past year has taught us, it’s that the unexpected can happen at any time. An emergency fund could be used for home repairs, car repairs, or simply to pay the bills in a time of need.
Start with just $5 a week, $25 per paycheck, or whatever figure feels doable for you. Ask your bank to set up an automatic transfer each month from one account to another in the amount you choose. That way, you don’t have to think about it. If you cut your spending, boost your savings by the same amount, in whatever way works for you, be it putting cash in an envelope or moving money manually through your bank.
Pay Off Debt
For many people, their debt load is what keeps them from feeling like they can save. Focus on paying down high-interest debt first. Credit cards or payday loans typically have higher interest rates than student loans or mortgages. Throw every dime you have at that high-interest debt, then when one loan is paid off, “snowball” that money into paying down the following loan. Repeat until you are debt-free, or your debt is at least a manageable monthly amount.
Another satisfying way to pay off debt is to throw money at the smallest balance first, so you can watch it disappear. When that’s done, throw that money at the next most significant balance, and watch that one do a disappearing act too.
Start Saving With Technology
One key to successful saving is to make it painless and effortless. There are so many personal finance apps that do different things these days. Apps that connect to your bank accounts can take money out of your account without you even noticing, but apps differ in how they do that.
Some apps, like Digit, utilize an algorithm that analyzes spending and transfers a small amount of money into a savings account based on income and spending trends. That approach might not work for people with sometimes-slim margins of how much they can spend, or if their income or spending is very irregular, such as for self-employed people. Other apps round up purchases and set aside the money. That’s what the Acorns app does.
If you buy a .99 cent soda, Acorns takes out 1 penny. If you spend $40.65 at the grocery store, Acorns takes out 35 cents (to achieve an even $41.00). Once it has saved up $5, it transfers the money to a savings account. You can turn round-ups on or off at any time or set it to round up different amounts: 2x, 3x, or 10x, or a whole dollar roundup — so if you spend $40.65, the amount that would come out of your account is $41.65, and Acorns would take the spare dollar. Over time, the money adds up, and you don’t even notice it’s coming out of your account.
Plan For Retirement
Save for retirement, or whatever other long-term goals you might have — like buying that sailboat you want to live on ten years from now. If your employer offers a retirement plan, take advantage of it. These regular monthly contributions have significant long-term benefits and can give you tax advantages. If not, you can set up an IRA on your own, through a bank or a financial advisor (you don’t have to have a lot of money to get help from an advisor!) Also, many apps, like Stash, can open a retirement savings account for you. If you can, max out the amount you can save for retirement each year.
Bottom line: the earlier you start saving for the future, and the faster you pay off debts, the better. Compound interest is on your side in savings, and compound interest works against you when it’s in the form of debt. In money, as in so many things, being perfect is less important than being consistent.