You may know about some of your upcoming financial events in advance, others not. The more predictable events include big expenses for a car, vacation, children’s education, and retirement. Those that are not predictable we label emergencies, such as being between jobs or needing extraordinary health or long term care.
If you are not as prepared for these events as you would like, you should look carefully at what you are doing. It may be one of those times when Einstein’s definition of insanity comes into play. Are you “doing the same thing over and over again and expecting a different result”? What needs to change to get a different result – in this case being prepared?
Perhaps you have concluded that having more savings would be helpful. Are you planning to save “extra money” (whatever that is)? For most people, that does not work. Here are three ideas to help you be more successful in this area:
1. Concentrate on the process, not just the outcome. Decide first on the amounts you will need and when you will need them, then build success into your action plan. How do most people save effectively? They save automatically and regularly. For retirement savings, for example, many people use their retirement plan at work or a (Roth) IRA if there is no retirement plan available there. In either case money is deposited from each and every pay check before it can be noticed or spent.
2. Segregate savings funds. In the old days people used to put cash into a piggy banks or envelopes, one for each purpose. In the 1930’s my grandmother secretly put money aside in a tin can for my father in case he wanted to go to college – it was cheaper then. My father went to college even though it was the Great Depression. Keeping funds separate can help you prevent “Peter from robbing Paul” and can let you match the money with the appropriate investment, although we don’t recommend the tin can approach.
3. Start now. If it is important to save, you need to make saving a high priority. Time has a way of sneaking up on you. If you start your automatic savings process early, you have time working for you, not against you.