How to start saving for the future
I often sit here daydreaming about winning the lottery. I wonder if I'd quit my job? I wonder if I'd buy a fancy new car or a villa in Europe somewhere? When I'm not in la-la land, I actually temper my dreams with reality and figure I'd just invest my winnings wisely so my family and i could retire in comfort.
These days, it's hard not to think about reality. What with the mortgage crisis, soaring energy prices and increasingly expensive food prices, we keep talking about saving for the future and being financially literate enough so that you manage your money wisely.
In that discussion about saving, Reader Don and I discovered that we are both worriers. We worry about whether we're saving enough for retirement. We worry about whether there will be any Social Security benefits left for us when we retire. We worry about whether we'll ever be able to retire. Don's banking on winning the lottery to lift him out of his worries. Me? I don't even play so i know I'll never win. That means I better have a plan B.
When I asked Don if he's got a plan B, he said: I haven't, and that's the scary part, my 401K has $655 in it, and that'll last me a week of retirement. We are truly the spend now, worry later generation and i am a prime example. I'm starting to think lottery tickets so any advice would be much welcomed!
Now thanks to Reader Don, I'm worried about Don, too! Not one to sit idly by without throwing a drowning man a life jacket, I immediately asked Financial Sage Eileen for the top three things she would recommend to Don. We don't know much of anything about Don except that he's 40 and hasn't saved much, but according to Eileen, it's never too late. Even if Don was just pulling our leg, Eileen's advice is good for everyone.
Eileen says:
First, we need to know his debt situation, his income and where is it going? If he doesn't know, he has got to track his spending.
Once he knows where his money goes, he needs to see if there are things he can cut corners. It may be he has to forgo cable, which can free up maybe $100 a month. It could be eating out. Maybe instead of eating out twice a week, he only does it once. or whatever.
Once he figures out where he can cut some corners, he needs to start saving. Since he has a 401(k), that's where he should start saving. His employer might even match his contributions, which is even better. Plus, having money come out directly from your paycheck before you pay taxes on it is not only easy, but has some friendly tax consequences.
You asked for three, but here's no. 4. If he says he can't cut corners at all, he needs to think about getting a part-time job that would allow him to increase his savings.
Don and everyone else out there, I hope this helps! I've tried this (cut cable and stopped eating out) to save money and it really, really works! I promise!
A native of Vietnam, 
Comments
Folks also offered some good, cheap tips on this post, but the bottom line is really asking yourself the tough questions about what expenses you truly need (i.e. utilities, rent/mortgage) and what's optional. Watching movies in the theater costs an awful lot more than renting them a few months later. Also, if you cut out a regular payment (i.e. $100 a month for cable) you should have that amount automatically transferred into a savings account, so you don't inadvertently spend it on something.
Posted by: Liz Kay | March 11, 2008 10:59 AM